Regrettably, Nissan CEO Makoto Uchida announced last week, “Our sales outlook in China is now significantly underperforming our production capacity.” He further stated that a bounce back in earnings in the world’s largest car market is expected to be a slow process.
Anticipations for the second quarter’s earnings are already subdued, partially due to China’s frailty. Data from Refinitiv I/B/E/S indicate that companies from the U.S. and Europe are projected to disclose their poorest quarterly outcomes in recent years.
Moreover, the brief revival in economic activity post the lifting of China’s extended COVID restrictions also underscores weak global demand, as per DHL Group (DHLn.DE), one of the largest global shipping firms, stated on Tuesday.
The firm reported a decrease of 16% and 7.1% in air and ocean cargo volumes respectively during the first six months, notably on routes connecting China with its primary trading partners – the US and Europe.
MISSING TARGETS Major chip manufacturers like Samsung (005930.KS) and SK Hynix (000660.KS) announced that despite China’s reopening, the smartphone market failed to bounce back. The firms are extending the production curbs on NAND memory chips, which are commonly used in mobile devices for data storage.
Apple (AAPL.O), the globe’s most valuable corporation, is projected to report stagnant iPhone sales in its third-largest market when it announces results on Thursday. Nonetheless, this performance would be an upgrade from the 2.1% decrease the research firm IDC calculated for China’s total smartphone market in the second quarter.
Major mining corporations and heavy machinery manufacturers are also feeling the pinch from the extended slump in the real estate sector.
Caterpillar CEO Jim Umpleby, in Tuesday’s earnings call, admitted that sales in China were anticipated to fall below the usual 5% to 10% of our business sales. He also revealed that the excavator industry above 10 tons has suffered more than expected.
Rio Tinto (RIO.L), (RIO.AX), the largest iron ore producer worldwide, remains cautiously hopeful about China, given the government’s commitment to implement more policies to spur growth.
Rio Tinto CEO Jacob Stausholm, speaking after the earnings announcement last week, noted the Chinese government’s impressive ability to manage the economy when things are tough.
POSITIVE TRENDS The hospitality industry, including eateries and hotels, along with luxury goods manufacturers, were some of the rare areas of growth, as Chinese consumers began spending more freely after the removal of COVID-19 mobility restrictions.
Starbucks disclosed a 46% rise in comparable sales in China during the last quarter, a recovery expected to continue, company officials informed investors on Tuesday.
Yum China (9987.HK), which owns the KFC and Pizza Hut brands in mainland China, announced a 25% increase in quarterly revenue but noted a reduction in spending per consumer as buyers become more “judicious” in their spending.
Both Hilton and Marriott, the hotel operators, experienced a revival, with Marriott reporting on Tuesday that quarterly room revenue in China had shot up by 125% compared to last year. Marriott’s CFO, Kathleen Oberg, told investors, “The recovery in China has proceeded faster than we anticipated.”
LVMH, the conglomerate whose portfolio includes 75 brands such as Louis Vuitton and US jeweller Tiffany, saw a promising 17% rise in global sales in the second quarter due to China’s rebound, but abstained from providing a forecast for the remainder of the year.
LVMH’s finance chief, Jean-Jacques Guiony, stated last week, “Unlike the ‘revenge buying’ trend we saw in 2021 and 2022, the current global sentiment does not mirror that. While we lack clarity, we are neither pessimistic nor see any reason to be in China.”
This article was reported by Reuters bureaus, written by Miyoung Kim and Josephine Mason, and edited by Christopher Cushing, Catherine Evans, and MarkPotter, adhering to the Thomson Reuters Trust Principles.
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