Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

China woes persist as pressure point for U.S. corporate profits

Stock MarketsOct 29, 2019 12:17PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: An aerial photo looking north shows shipping containers at the Port of Seattle and the Elliott Bay waterfront in Seattle

By April Joyner and Caroline Valetkevitch

NEW YORK (Reuters) - The U.S.-China trade war persists as an impediment to the growth of U.S. companies, even as the two countries appear close to clinching a limited agreement.

In third-quarter corporate reports over the past few weeks, companies such as Caterpillar Inc (N:CAT), 3M Co (N:MMM) and Texas Instruments Inc (O:TXN) have blamed the protracted trade dispute for undermining their revenue or profits as well as their financial outlooks.

On Friday, the U.S. Trade Representative's office said the United States and China were "close to finalizing" parts of a trade deal.

But judging by several companies' comments, trade-related challenges may have an abiding impact on their results for several quarters to come.

In its post-earnings conference call on Thursday, for instance, 3M said it expected "continued softness" in China through at least the fourth quarter and cut its full-year profit forecast. China's slowing economy hurt factory production, leading to weakened demand for 3M's automotive products. The company's shares fell 4.1% on Thursday, their biggest one-day drop since April.

Texas Instruments, whose shares sank 7.5% after the chipmaker's quarterly report late last Tuesday, struck a similar tone.

"This thing, we've been in it for four quarters, and it's going to be longer than that," Rafael Lizardi, senior vice president of finance and operations, said during the company's conference call with analysts, in reference to trade tensions.

Several companies, such as Honeywell International Inc (N:HON), have said they have been able to mitigate the impact of tariffs.

But, according to some investors, the tariffs themselves may not be the biggest worry as the U.S.-China trade war has also sapped business confidence.

"It's something we need to be concerned about," said JJ Kinahan, chief market strategist at TD Ameritrade in Chicago. "With a trade deal, we may see an initial lift (in stocks), but it's not necessarily the case that business spending will start up again quickly."

The U.S.-China trade war: a timeline - https://fingfx.thomsonreuters.com/gfx/mkt/12/7934/7865/2019-10-29_12h01_35.png

Moreover, several chipmakers, including Xilinx Inc (O:XLNX) and Micron Technology Inc (O:MU), have taken a financial hit from the United States' blacklisting of Chinese telecoms giant Huawei https://www.reuters.com/article/us-usa-trade-china/u-s-blacklists-chinas-huawei-as-trade-dispute-clouds-global-outlook-idUSKCN1SL2DI Technologies Co Ltd , a move the White House has said would not be addressed in the "Phase 1" trade agreement.

"That would be the bigger thing than tariffs by far," Xilinx Chief Executive Victor Peng said of the White House's continued restrictions on Huawei during the company's post-earnings conference call on Wednesday.

To be sure, investors have largely shrugged off negative results so far this earnings season.

The benchmark S&P 500 (SPX) stock index hit a record high on Monday. Shares of Caterpillar and Boeing Co (N:BA) rose after their reports even though results were well below estimates.

The fallout from the trade war reported so far from companies may not be as bad as investors had feared, said Jamie Cox, managing partner of Harris Financial Group in Richmond, Virginia.

"I've actually been happy with what I've seen," he said.

The number of S&P 500 companies that have mentioned the term "tariff" so far this earnings season is 59, down slightly from 66 over a comparable period in the second-quarter reporting season, according to data as of Friday from FactSet.

As of Tuesday, nearly half of the S&P 500 companies had reported quarterly results.

Even so, some market watchers were concerned that fallout from the trade war may be spreading beyond bellwethers such as industrial companies and chipmakers.

Toymaker Hasbro Inc (O:HAS), for instance, said uncertainty over tariffs had caused retailers to cancel or delay orders. Hasbro shares fell 16.8% on Tuesday after its quarterly revenue and profit came in below Wall Street estimates.

Seasoning maker McCormick & Co (N:MKC), even though it posted stronger-than-expected earnings and raised its forecast, was among companies expressing some wariness over China.

"We're cautious about China," McCormick Chairman and Chief Executive Lawrence Kurzius, said during the company's Oct. 1 earnings call. "We just had a great quarter in China, but we are aware of the volatile environment that we're in."

Consequently, even companies relatively insulated from the trade war could see some strain as the conflict weighs on the global economy, said Shannon Saccocia, chief investment officer at Boston Private in Boston.

"Deep cyclical (stocks) have always traded on the trade war," she said. "But what we're seeing in the results is that negative sentiment is starting to bleed over to other areas."

China woes persist as pressure point for U.S. corporate profits
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Nicholas Winch
Nicholas Winch Oct 30, 2019 12:57AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Is it a trade war? The US has been the most generous to China for 35 years while they were committing theft of technology.. The fake media covers it like it's the fault of the USA...
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email