Risks of Extreme Heat on Investors

Extreme heat not only poses risks to health and life, but it also presents a significant danger to investors in various industries, ranging from frozen food suppliers to retailers of home goods.

When temperatures soar, it not only affects crops leading to crop failures, but it also slows down discretionary economic activities. Moreover, the backbone of the information economy, data centers, can crash under such extreme conditions. However, it’s worth noting that certain companies stand to benefit from rising temperatures, such as those engaged in the sales of air conditioners and auto parts.

In light of the intensifying impacts of climate change, investors must pay closer attention to these issues. According to an analysis by the nonprofit organization Climate Central, human-caused climate change has increased the likelihood of extreme heat events by five-fold. Data from S&P Global reveals that by 2050, more than 90% of major companies will have at least one financially exposed asset susceptible to climate extremes. Despite facing these threats, very few companies provide detailed data on the location or climate risk of their infrastructure.

Although discussions around extreme heat are relatively uncommon during quarterly earnings calls, it is anticipated that this topic will be mentioned more frequently in the coming months due to the severity of temperature spikes experienced today.

Recent heat waves worldwide have resulted in record-breaking global temperatures, according to preliminary data from the World Meteorological Organization. The intensity of heat has persisted, with Phoenix enduring temperatures exceeding 110 degrees for the past 11 consecutive days. California is also set to experience temperatures 15 degrees higher than normal in the coming days. Similar heat waves have affected states like Texas as well.

Some agriculture companies have previously voiced concerns about extreme heat during earnings calls. Kurt Barton, Chief Financial Officer of Tractor Supply (TSCO), stated during a period of extreme weather last year that “the extreme heat and drought conditions are continuing into the third quarter, and we forecast these conditions will limit upside to sales.”

As climate change worsens, understanding and managing the risks associated with extreme heat will become increasingly vital for investors across a range of industries.

Extreme Heat Takes a Toll on Potato Crops and Business Opportunities

The scorching summer heat in the primary growing regions of the Columbia Basin, Idaho, and Alberta has severely impacted the yields and quality of potato crops. Thomas Werner, CEO of Lamb Weston Holdings, a renowned food processing company based in Idaho, expressed concern over the below-average performance of the crops. Lamb Weston is responsible for producing popular items like frozen french fries.

Extreme heat not only affects agricultural activities but also impacts consumer behavior. For instance, Lowe’s, a prominent home and construction retailer, has previously highlighted how high temperatures deter people from going out to shop or dine at restaurants.

Moreover, industries relying on equipment that generates heat, such as data centers, face setbacks during periods of extreme heat. Last year, a heat wave in London temporarily disrupted servers at data centers used by Alphabet and Oracle.

However, amidst these challenges, there are significant business opportunities. Companies specializing in heating, ventilation, and air conditioning (HVAC) play a crucial role in combating the adverse effects of extreme heat. Carrier Global and Ingersoll Rand have witnessed a notable surge in their stock prices, with an increase of 9% and 5% respectively over the past week.

Automotive parts suppliers also reap the benefits during heatwaves as customers require additional maintenance. The soaring temperatures tend to negatively impact car batteries and other parts, resulting in increased demand for replacements. Notably, companies like O’Reilly Automotive have noticed improved sales volume trends in July, partially attributed to the extreme heat across various markets.

AutoZone and Genuine Parts are other prominent auto parts companies that have acknowledged the advantages brought about by extreme heat conditions.

In conclusion, extreme heat presents challenges for potato farmers and various industries but also opens up business opportunities for HVAC companies and auto parts suppliers. The impacts of extreme heat extend far beyond the weather itself, influencing consumer behavior and market trends.