From Estee Lauder to Apple, China’s Covid restrictions take their toll

on May5
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Factories in China affected by Covid lockdowns can conditionally resume work, by housing workers on-site. Pictured here is an auto parts manufacturer in Suzhou that has had 478 employees on site since April 16.

CFOTO | Future Publishing | Getty Images

BEIJING — Several international corporations warned in the last week the drag from China’s Covid controls will hit their entire business.

Since March, mainland China has battled an outbreak of the highly transmissible omicron variant by using swift lockdowns and travel restrictions. The same strategy had helped the country quickly return to growth in 2020 while the rest of the world struggled to contain the virus.

Now the latest lockdown in Shanghai has lasted for more than a month with only slight progress toward resuming full production, while Beijing has temporarily closed some service businesses to control a recent spike in Covid cases.

International corporations have a host of other challenges to deal with, from decades-high inflation in the U.S. and a strong dollar, to the Russia-Ukraine war. But China is an important manufacturing base, if not consumer market, that many companies have focused on for their future growth.

Here is a selection of what some of the companies have told investors about China in the last week:

Starbucks: Suspending guidance

Conditions in China are such that we have virtually no ability to predict our performance in China in the back half of the year.

Howard Schultz

Starbucks, interim CEO

The coffee giant suspended its guidance for the rest of the fiscal year, or the remaining two quarters.

“Conditions in China are such that we have virtually no ability to predict our performance in China in the back half of the year,” interim CEO Howard Schultz said on an earnings call, noting additional uncertainty from inflation and the company’s investment plans.

Starbucks said it still expected its China business to be bigger than the U.S. in the long term.

Apple: Shanghai lockdown to hit sales

“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 Covid disruptions for affecting consumer demand in China.

DuPont: Second-quarter lockdown impact

Estee Lauder: Cutting fiscal year outlook

Read more about China from CNBC Pro

“Consequently, retail traffic, travel, and distribution capabilities were temporarily curtailed,” it added. “The Company’s distribution facilities in Shanghai operated with limited capacity to fulfill brick-and-mortar and online orders beginning in mid-March 2022.”

The new guidance for the fiscal year, which ends June 30, anticipates revenue growth of between 7% to 9%, well below FactSet expectations for a 14.5% increase. Estee Lauder’s forecast of $7.05 to $7.15 earnings per share is also below the $7.57 a share analysts expected.

Yum China: Upcoming quarterly loss

Chinese companies cut earnings forecasts

For the first quarter, roughly half of MSCI China mainland stocks, excluding financials, missed first-quarter earnings expectations, with only about a quarter beating expectations, Morgan Stanley analysts said in a note Tuesday.

The quarterly results were the worst since the first quarter of 2020, the analysts said.

That’s when the pandemic initially shocked the economy and GDP contracted.

Downward earnings revisions are likely to continue for another two to four weeks, the Morgan Stanley report said, noting all of the mainland traded stocks known as A shares have all reported first-quarter results as of April 30.

Overall decline in corporate sentiment

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