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Are S&P 500 Companies Citing a Negative Impact from China on Q4 Earnings Calls?

Earnings

By John Butters  |  January 14, 2019

While the majority of S&P 500 companies will report earnings results for Q4 2018 over the next few weeks, 4% of the companies in the index (20 companies) have already reported earnings results for the fourth quarter. Given the number of concerns in the market (particularly surrounding weakness in China), have these companies discussed specific factors that had a negative impact on earnings or revenues for the fourth quarter (or are expected to have a negative impact in future quarters) during their earnings conference calls?

To answer this question, FactSet searched for specific terms related to a number of factors (i.e. “currency,” “China,” etc.) in the conference call transcripts of the 19 S&P 500 companies that had conducted fourth quarter earnings conference calls through January 11 to see how many companies discussed these factors. FactSet then looked to see if the company cited a negative impact, expressed a negative sentiment (i.e. “volatility,” “uncertainty,” “pressure,” “headwind,” etc.), or discussed clear underperformance in relation to the factor for either the quarter just reported or in guidance for future quarters. The results are shown below

Foreign exchange has been cited by more than 60% of the companies (12) that have reported to date as a factor that either had a negative impact on earnings or revenues in Q4 or is expected to have a negative impact on earnings and revenues in future quarters.

 Companies Citing Negative Impact On Earnings Calls  

It is interesting to note that the terms “China” or “tariff” (or both) have been mentioned during the earnings calls of 11 S&P 500 companies to date, with six of these 11 companies citing a negative impact linked to either China or tariffs (or both). However, almost the same number of S&P 500 companies (5) have cited a positive impact or expressed a positive sentiment about China to date. Please see the next page for a list of companies and comments.

China/Tariff: Negative (6)

“Looking forward, the U.S. has agreed to postpone plans to increase tariffs from 10% to 25%. We will continue to monitor developments closely and working with our industry associations to share our concerns about the potential negative ramifications of ongoing and increased tariffs to our customers and the broader economy.” -AutoZone (Dec. 4)

“Quickly on tariffs, there's not a whole lot new to tell you there…There's some items that when the tariffs have been in the 10-plus percent range have been very little impact on the sales. Some, there's been a little bit more negative impact.There's some items that when the tariffs have been in the 10-plus percent range have been very little impact on the sales. Some, there's been a little bit more negative impact.” -Costco (Dec. 13)

“In addition, China's economy has weakened due in part to trade disputes. As a result, we have lowered our fiscal 2019 earnings guidance and are accelerating actions to reduce costs given the uncertainty of global macroeconomic trends.” -FedEx (Dec. 18)

“During the last few months, we successfully leveraged our global supply chain to mitigate the impact of the China trade tariffs to less than 50 basis points to our consolidated fiscal first quarter gross margin.” -Micron (Dec. 18)

“It was also their effort that enabled us to execute despite a plethora of headwinds, like, rising geopolitical tensions all over the world, including…disruptions in China like with the trade and stoppage and travel to Korea, economic malaise in some key countries in Europe including uncertainty around Brexit, and temporary overconcentration of industry supply at times in regions like the Caribbean.” Carnival (Dec. 20)

“And last, if you think about China, for example, we've seen a bucket announced in July of tariff increases on a certain set of products and services. We were not impacted by that. The second bucket came in September. We were slightly impacted by that and we touched on that last quarter. Again, it's a pretty small amount, but that may continue. And certainly then, it's too early to tell on anything else that may change with China.” -Cintas (Dec. 20)

China/Tariff: Positive (5)

“So having said that, the China business for us has been doing well.” -Adobe (Dec. 13)

“In our Asia & Latin America segment, organic net sales increased 5% in the second quarter, with strong growth on our global Accelerate platforms and on Wanchai Ferry in China.” -General Mills (Dec. 19)

“You know things are definitely better than they were say a year plus ago in China.” -Carnival (Dec. 20)

“And I'm just delighted that we delivered another excellent quarter in Growth Markets with 17% growth in local currency. Japan again led the way with very strong double-digit growth. And we had double-digit growth in Brazil, in China, and in Singapore as well.” -Accenture (Dec. 20)

“Next, let's turn to Greater China, where yet again, we delivered double-digit revenue growth in Q2. This marks the 18th consecutive quarter of double-digit revenue growth in China. In Q2, growth accelerated to 31% on a currency-neutral basis with digital growing over 40%...While there has been uncertainty of late regarding U.S. China relations, we have not seen any impact on our business. NIKE continues to win with the consumer in China.” -NIKE (Dec. 20) 

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John Butters

Senior Earnings Analyst

John’s weekly research report, Earnings Insight provides analysis and commentary on trends in corporate earnings data for the S&P 500, including revisions to estimates, year-over-year growth, performance relative to expectations, and valuations. He is a widely used source for the media and has appeared on CNBC, Fox Business News, and the Business News Network. In addition, he has been cited by numerous print and online publications such as The Wall Street Journal, Financial Times, The New York Times, MarketWatch, and Yahoo! Finance.

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