Amazon's CFO gave a 5-minute earnings call intro on a 'gut-wrenching' 2 months scrambling to address demand spikes and worker safety (AMZN)

Amazon CFO Brian Olsavsky

Amazon CFO Brian Olsavsky spent the first 5 minutes of Thursday's earnings call addressing COVID-19, an unusual way to start the call for the company.
He explained the challenges Amazon is facing due to COVID-19, and thanked the warehouse and delivery workers, as well as third-party sellers on its marketplace.
Amazon CEO Jeff Bezos also gave an unusually long statement in the company's earnings release, saying, "These aren't normal circumstances."
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Amazon's earnings call on Thursday started off in an unusual way, reflecting the gravity of changes it's facing amid COVID-19.

Amazon CFO Brian Olsavsky — who typically jumps right into the Q&A session — took the first 5 minutes of his call with analysts to explain the severe challenges Amazon is experiencing during the pandemic. He also thanked the warehouse and delivery workers for their work, while acknowledging the work put in by the third-party sellers to continue serving its customers.

"What we've all seen transpire in the past 2 months has been gut-wrenching and unprecedented," Olsavsky said. "But it's also been a time of heroic action by health care workers, government officials, police and emergency personnel and all essential workers in our communities. This includes frontline Amazonians, including our Whole Foods team and our partners around the world. They've provided a lifeline of groceries and other critical supplies to the doorsteps of all of us at this critical time."

Olsavsky's remarks come at a time when Amazon is dealing with public outcry over warehouse safety issues and treatment of its hourly workers. Sellers on its marketplace, meanwhile, have been expressing confusion over the constantly changing marketplace policies.

All of these issues, however, are having little impact on Amazon's top-line growth. Amazon's first-quarter revenue far exceeded street expectations, as more people shopped online during the outbreak. But the increased demand is weighing on Amazon's costs, as it needs to hire more people and spend on additional logistical measures to meet the demand.

Amazon CEO Jeff Bezos, who does not participate in the quarterly earnings conference calls, also gave an unusually long statement in the company's first-quarter earnings press release, saying the epidemic is causing a lot of uncertainties. For one, Amazon plans to spend all of the $4 billion it's projected to make in second-quarter profits on COVID-19-related expenses, he said.

"These aren't normal circumstances," Bezos said in the statement.

Here is Olsavsky's full statement provided by financial research firm Sentieo:

"Before we move on to the Q&A, I'd like to lead off with a few comments. What we've all seen transpire in the past 2 months has been gut-wrenching and unprecedented. But it's also been a time of heroic action by health care workers, government officials, police and emergency personnel and all essential workers in our communities. This includes frontline Amazonians, including our Whole Foods team and our partners around the world. They've provided a lifeline of groceries and other critical supplies to the doorsteps of all of us at this critical time.

I'd like to give you some insight into what we have seen in Amazon and how we are responding to this crisis. Beginning in early March, we experienced a major surge in customer demand, particularly for household staples and other essential products across categories such as health and personal care, groceries and even home office supplies. At the same time, we saw lower demand for discretionary items such as apparel, shoes and wireless products. This large demand spiked, creating major challenges in our operations network and with our seller community and our suppliers.

While we generally have experience in getting ready for spikes in demand for known events like the holiday season and Prime Day, we also generally spend months ramping up for these periods. The COVID crisis allowed for no such preparation. We took quick action to react to the higher order levels while continuing to provide for the safety of our workforce. We established rigorous safety and cleaning protocols, including maintaining 6-foot social distancing, procuring 100 million masks, tens of millions [indiscernible] in wipes and other cleaning supplies. We began requiring temperature checks across our operations network. In our Whole Food stores, we added plexiglass barriers between cashiers and customers and reserve special hours for senior customers to shop. We temporarily raised wages and overtime premiums, we funded a new Amazon relief fund, and we allowed employees to take unpaid time off at their discretion. To deal with the unprecedented demand, we hired an additional 175,000 new employees, many of whom were displaced from other jobs in the economy. We took steps to dampen demand for nonessential products, including reducing our marketing spend.

Our network pivoted to shipping priority of products within 1 to 4 days and extending promises on nonpriority items. Our independent third-party sellers, most of whom are small and medium-sized businesses, worked tremendously hard to serve our customers, and we are grateful for their efforts. Third-party sellers continue to see strong growth in our stores as more than half of our units sold are from third party sellers.

We increased grocery delivery capacity by more than [ 60% ] and expanded in-store pickup at Whole Food stores from over -- from 80 stores to more than 150 stores. And other Amazon team shifted their focus to directly helping customers in the overall effort to fight the COVID virus.

AWS has created DataLake to assist health care workers, researchers, scientists and our public health officials who are working to understand and fight the coronavirus. Many of our AWS products are helping in the government response to crisis and are there for customers who are seeing their own demand spikes. Companies enabling videoconferencing, remote learning and online health services, for example.

Amazon Flex is supporting food banks by donating delivery services of groceries to serve 6 million meals in Los Angeles, Miami, Nashville, Orlando, San Francisco, Seattle and Washington, D.C. with plans to ramp this up to 25 cities across the U.S. And Alexa is helping customers access important CDC guidance and help them evaluate their own COVID-19 risk levels.

How is all this impacting our business? While customer demand remains high, the incremental revenue we are seeing on many of the lower ASP essential products is basically coming at cost. We've invested more than $600 million in COVID-related costs in Q1 and expect these costs could grow to $4 billion or more in Q2. These include productivity headwinds in our facilities as we provide for social distancing and allow for the ramp-up of new employees; investments in personal protective equipment for employees; enhanced cleaning of our facilities; higher wages for our hourly teams and hundreds of millions of dollars to develop COVID-19 testing capabilities.

In Q1, we also had another $400 million of costs related to increased reserves for [ doubtful ] accounts. On the flip side, we did see a drop in travel, entertainment and meeting costs as well as lower market has weighted and dampen our demand for nonessential items.

While we can't have great certainty about what the next few quarters will look like, I'm humbled by the efforts of my fellow Amazonians in delivering essential goods and services to so many people. We take this responsibility seriously, and we're proud of the work our teams are doing to help customers through this difficult time.

With that, let's open up for questions."

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