Slowing sales in China worries big companies

Aug 2 (Reuters) – Major international companies from Nissan to Unilever to Caterpillar have warned of slowing profit growth in China, which is seeing its post-COVID recovery run out of steam.
The country’s economic recovery has been limited to a handful of sectors such as catering and luxury, which has benefited the French giant LVMH or the Starbucks coffee chain, for example.
But even these powerful players refrained from raising their outlook for China, while consumer goods firms such as Procter & Gamble, L’Oreal and Coca-Cola took a cautious stance.

“What we’re seeing is a very cautious consumer in China, a declining property market and reduced export demand,” Graeme Pitkethly, Unilever’s chief financial officer, said on a conference call last week. on April-June results.

“Furthermore, unemployment is high in China, especially among young people…As far as we can tell, we are at the lowest point in history for Chinese consumer confidence” , he added.

Global automakers are also facing increased competition from local brands, which for the first time gained the upper hand in the first half with a market share of over 50%.

On Thursday, German Volkswagen slashed its annual revenue target due to a drop in sales in China, its main market.

AT LEAST GOOD FOR TECH

In the tech sector, chipmakers Samsung and SK Hynix pointed to China’s reopening failing to revive the smartphone market and they were prolonging production cuts for NAND memory chips.

Even Apple, which will report earnings on Thursday, is expected to show flat iPhone sales in its third-largest market.

Major mining companies and manufacturers of construction machinery have also suffered from the prolonged slump in the real estate sector.

“We indicated at our last earnings conference that we expect sales in China to be below our usual 5%-10% range. We now expect further weakness as the excavator sector of 10 tons and more has declined even more than we anticipated,” Caterpillar CEO Jim Umpleby said Tuesday.

Nevertheless, Rio Tinto, the world’s largest producer of iron ore, is cautiously optimistic about China’s economy as Beijing pledges to put in place new measures to revive growth.

“Our experience with China is that if things go less well, the Chinese have a pretty impressive ability to manage the economy,” Rio Tinto chief executive Jacob Stausholm said last week.

LUXURY DOES WELL

Restaurants and luxury goods companies were among the few beneficiaries of consumer spending following the lifting of health restrictions.

Starbucks reported a 46% increase in like-for-like sales in China in the third quarter; a rebound in line with its expectations and which should last, company officials said at a press conference on Tuesday.

Yum China, owner of mainland Chinese fast-food chains KFC and Pizza Hut, reported a 25% increase in revenue in the second quarter but said spending per person fell, consumers becoming more “rational”.

LVMH, whose 75 brands include Louis Vuitton, Dior and jeweler Tiffany, saw sales in the April-June period grow 17%, slightly above consensus thanks to a rebound in China, but refrained from give prospects for the rest of the year.

“The global mood is not in the ‘revenge buying’ that we experienced in 2021 and 2022, so we are talking about normalization rather than anything else,” said group chief financial officer Jean-Jacques Guiony. . “We have no visibility, we are not pessimistic and in China we have no reason to be.” (Kailyn Rhone in New York, Mimosa Spencer in Paris, Sophie Yu in Beijing, Brenda Goh in Shanghai, Richa Naidu in London, Melanie Burton in Melbourne, Daniel Leussink in Tokyo, Victoria Waldersee and Miranda Murray in Berlin, Rishav Chatterjee, Deborah Sophia , Ananya Mariam Rajesh and Yuvraj Malik in Bangalore; written by Miyoung Kim, French version Laetitia Volga, edited by Kate Entringer)