Factories in China affected by the Covid shutdown can continue to work conditionally, thanks to workers working on site. Pictured here is an auto parts manufacturer in Suzhou, which has 478 employees on site as of April 16.
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BEIJING – Several international corporations warned last week that the drag from China’s Covid control measures would affect their entire business.
Since March, mainland China has been dealing with an outbreak of the highly contagious omicron variant using rapid lockdowns and travel restrictions. The same strategy has helped the country quickly return to growth in 2020 while the rest of the world struggles to contain the virus.
Currently, the latest closure in Shanghai has lasted for more than a month with only slight progress towards resumption of full production, while Beijing has been temporarily closed several service businesses to control the recent spike in Covid cases.
International corporations have a different set of challenges to deal with, from decades-high inflation in the US and a strong dollar, to the Russia-Ukraine war. But China is an important manufacturing base, if not a consumer market, that many companies have focused on for future growth.
Here’s a selection of what some companies have told investors about China in the last week:
Starbucks: Tutorial Pause
Starbucks said sales at similar stores on Tuesday in China fell 23% in the quarter ended April 3 from the same period last year. According to FactSet, this is far worse than the 0.2% gain that analysts expected.
Conditions in China are such that it is almost impossible for us to predict the results of our operations in China over the past half year.
Howard Schultz
Starbucks, Interim CEO
Coffee giant suspends instruction for the remainder of the fiscal year or the remaining two quarters.
Interim Chief Executive Officer Howard Schultz said in an earnings call, adding more uncertainty from inflation and the company’s investment plans.
Starbucks said it still expects its business in China to be larger than the US in the long term.
Apple: Shanghai closed for sales
Although nearly all of its final assembly plants in Shanghai are restarting production, Apple indicates a possible door lock sales in the current quarter from $4 billion to $8 billion – “significantly” more than the previous quarter. The other factor is the ongoing chip shortage, management said during its April 28 earnings call.
“Covid is difficult to predict,” CEO Tim Cook said after describing those estimated costs, according to an earnings call transcript from StreetAccount.
Apple also blamed the Covid disruption for affecting consumer demand in China.
DuPont: Impact of second quarter lockdown
DuPontThe company, which sells multi-sector specialty products such as adhesives and building materials, posted second-quarter guidance on Tuesday that fell short of analyst expectations.
Lori Koch, DuPont CFO, said: “We anticipate significant external uncertainties in the macro environment, namely the COVID-related shutdown in China, to tighten further. supply chain, resulting in slower volume growth and continued shrinking margins in the second quarter of 2022,” Lori Koch, DuPont’s CFO, said in a release, noting that ” basic demand continues to remain stable.”
Two DuPont sites in China “go into full lockdown in March” and are expected to be fully reopened in mid-May, Koch said. In the electronics business, she said, the inability to source materials from China forced some factories to run at lower prices, affecting profit margins in the second quarter.
The company expected revenue of $3.2 billion to $3.3 billion for the second quarter, slightly below FactSet’s $3.33 billion forecast. Earnings per share of 70 cents to 80 cents for the second quarter were also below FactSet estimates of 84 cents per share.
Full-year guidance for the year ending December remains in line with FactSet expectations.
Estee Lauder: Cuts fiscal year outlook
Despite a strong third fiscal quarter, the company’s makeup Estee Lauder cut its full-year outlook due to the control of Covid in China and inflation.
“The re-emergence of COVID-19 cases in many Chinese provinces led to restrictions at the end of the third quarter of fiscal 2022 to prevent further spread of the virus,” the company said in a statement. announcement on Tuesday.
“As a result, retail traffic, travel and distribution are temporarily limited,” it added. “The Company’s distribution facilities in Shanghai will operate at limited capacity to accommodate brick-and-mortar and online orders starting mid-March 2022.”
New guidance for the fiscal year, which ends June 30, predicts revenue growth of 7% to 9%, well below FactSet’s expectations for a 14.5% increase. Estee Lauder forecast earnings of $7.05 to $7.15 per share also below the $7.57 that stock analysts expected.
Yum China: Quarterly loss coming
While analysts typically expect second-quarter earnings of 29 cents a share, Chinese Yum Chief Financial Officer Andy Yeung warned that “unless the COVID-19 situation improves significantly in May and June, we expect an operating loss in the second quarter.”
The company operates the fast food brands KFC and Pizza Hut in China, and is major shareholder in a joint venture with Italian coffee company LavazzaThe company opened a cafe in China last year.
Yum China said on Tuesday that same-store sales fell 20% year-on-year in March and are likely to maintain the same decline in April. The company said it still intends to meet its full-year goal of 1,000 to 1,200 new stores.
Chinese companies cut earnings forecasts
In the first quarter, nearly half of mainland China MSCI stocks, excluding financials, missed first-quarter earnings expectations, with only about a quarter beating the period, Morgan Stanley analysts said. hope, Morgan Stanley analysts said.
Analysts said the quarterly results were the worst since the first quarter of 2020.
That’s when the pandemic initially shocked the economy and GDP dropped.
“The downward revisions in earnings are likely to continue for another 2-4 weeks,” the Morgan Stanley report said, noting that all mainland-traded stocks called All A shares have reported first-quarter results as of April 30.
Overall decline in corporate sentiment
As U.S. businesses face some domestic challenges, the Bank of America’s proprietary gauge of corporate sentiment for S&P 500 shares plummeted in the first quarter to its lowest level since the second quarter of 2018. 2020, the company said in a report Sunday.
The latest sentiment scores show a sharp drop in earnings ahead, although that is not the base case for BofA, the report said.
Several key corporate earnings are still ahead, including Disney and Toyota Motors Results will be out next Wednesday local time.
The Shanghai Disney Resort has been closed since March 21 until further notice, while China’s auto sales tumbled in March.
– by CNBC Robert Hum contributed to this report.
