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China weakness spreads far and wide, from Caterpillar to Nvidia

In this Thursday, Nov. 29, 2018, photo, a woman walks past a Tiffany & Co. store at a shopping mall
Luxury retailer Tiffany & Co. has bucked the trend of softening sales in China.
(Mark Schiefelbein / Associated Press)
Bloomberg

Caterpillar Inc. manufactures huge yellow bulldozers. Nvidia Corp. makes minuscule computer chips. Their products have little in common, but their earnings this week pointed to the same conclusion: demand in China is slowing down for a widening range of goods.

The world’s second-largest economy, which contributes about a third of global growth, has been weakening for years after averaging more than 10% growth for three decades through 2010. The pace of expansion cooled to 6.6% last year, the slowest since 1990, while retail sales grew 9%, the least since 2003.

Since Apple Inc. shook investors in early January with a warning, a picture is starting to emerge on where the tempering of the $12.2-trillion economy will hurt in the coming year. It includes Stanley Black & Decker Inc.’s tools, PPG Industries Inc.’s automotive coatings, Intel Corp.’s processors and Trinseo’s synthetic rubber tires.

Here’s a rundown of what U.S., European and Asian companies have said so far this earnings season:

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Industrials

Caterpillar, an industry bellwether, sent a gloomy signal on Monday when it posted its biggest quarterly profit shortfall in a decade and provided a 2019 forecast that trailed some of Wall Street’s estimates. Sales of excavators will be flat year over year in China, the Deerfield, Ill.-based company said.

Stanley Black & Decker Chief Executive Jim Loree wasn’t shy about raising the alarm bells on China last week, saying it was facing slowing economic growth there, along with most of the rest of the world. The previous week, paint maker PPG talked about “sluggish industrial activity in China” among pressures that the company will hit in the first half of 2019.

Technology

Santa Clara, Calif.-based Intel Corp., whose processors are in most of the world’s personal computers and servers, cited softness in China among the reasons for its lower-than-expected full-year forecast last week. Nvidia, the biggest maker of chips for computer graphics cards, echoed those comments on Monday, saying that “deteriorating macroeconomic conditions, particularly in China, impacted consumer demand” for its products.

Nidec Corp., a Japanese maker of precision motors used in computer drives, cut its profit outlook by 26% for the year ending March 31, blaming it on the U.S.-China trade war. It reported a 43% drop in operating profit for the quarter through December.

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Samsung Electronics Co.’s quarterly profit and revenue missed estimates on sputtering demand for memory chips during the last three months of 2018, the same period Apple saw anemic sales in China. The South Korean company has been losing share for its smartphones for years in China, but the slowdown there is now threatening to hurt its crucial chip business.

On Tuesday in Japan, Alps Alpine Co., a supplier of electronic parts to automakers and Apple, cut its profit forecast for the year by 24%, blaming the U.S.-China trade war and Brexit.

Autos

Car sales in China fell last year for the first time in more than 20 years. “China is under threat, for sure,” Volkswagen CEO Herbert Diess said in a Bloomberg TV interview in Davos, Switzerland. “This year will be challenging.”

Ford Motor Co. posted a fourth-quarter loss of $534 million in China. Wholesale sales by the carmaker’s China joint ventures — a measure of how many vehicles are shipped to dealers — plunged 57% during the period. By the end of last year, only about a third of the company’s dealers were profitable, Jim Farley, Ford’s president of global markets, said on a Jan. 23 earnings call.

U.S. auto parts supplier Lear Corp. offered more color on China. Lear, whose biggest customer is Ford, said it expected orders for parts such as seating systems to fall more than 10% this year.

“They confirmed auto weakness in China,” Douglas Rothacker, an analyst for Bloomberg Intelligence, said in an interview. “Lear offers a good read across the industry for expectations in 2019.”

Continental, Europe’s second-largest car parts maker, warned this month that Chinese auto production might stagnate at best this year, leading to a muted earnings forecast for 2019.

Hyundai Motor Co., the world’s fifth-largest automaker together with affiliate Kia Motors Corp., said last week that it’s losing workers and reviewing its production plans in China during the Lunar New Year holidays after reporting a surprise loss for the quarter through December, the first in at least eight years. “We internally see China is the most difficult market,” Joo Woo-jeong, chief financial officer at Kia, said.

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Retail

So far, luxury and consumer goods have been mostly spared. Jeweler Tiffany & Co. enjoyed strong growth in China in the final two months of the year.

“The holiday period has actually been very positive — China is a big area of focus,” Tiffany CEO Alessandro Bogliolo said in an interview on Jan. 18. He said a boost in marketing spending there about a year ago has started to pay off. “We have seen an acceleration in mainland China.”

Starbucks Corp. is opening a new store every 15 hours in the country. Executives at consumer giant Procter & Gamble Co. said last week that they haven’t seen any sign of a slowdown in the country, although “things in China can change quickly.”

Fast Retailing Co., Asia’s largest retailer, said the operating profit for its Uniqlo brand grew by double digits on mainland China during the three months that ended Nov. 30. China is the Japanese company’s biggest foreign market and a key pillar of its strategy to counter weakness at home.


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