Big U.S. firms adopt cautious tone on China recovery

Cummins

10/05/2023 12:36

May 10 (Reuters) - Several U.S. companies, including
PepsiCo, Qualcomm and Cummins, struck a cautious note on their
growth prospects in China, blaming what they said was a
slower-than-expected recovery after the country lifted COVID
curbs in December.
    China's economy grew faster than expected in the first
quarter but remarks from American companies with substantial
operations in China suggest that demand has not returned to
pre-pandemic levels. 
    In April, China's imports contracted sharply, underscoring
signs of weak domestic demand as a battered property market,
worries over job stability and global economic uncertainty kept
shoppers wary.
    "China is getting better, but slowly," PepsiCo  PEP.O  Chief
Financial Officer Hugh Johnston told Reuters late last month.
    "We grew mid-single digits in China, which had previously
been a double-digit growth market for us pre-pandemic. I think
it's going to take some quarters before it really gets back to
where it was before."
    Rival Coca-Cola  KO.N  echoed the sentiment.
    Starbucks, the world's largest coffeehouse, posted a 3% rise
in China comparable sales in its second quarter, but said growth
in average weekly sales will be at a more moderate pace in the
second half of the year.
    Cosmetic maker Estee Lauder Cos Inc  EL.N  last week
forecast weaker sales and profit for the year than previously
estimated, blaming slow recovery at duty-free and travel
destinations including China.
    "Consumer confidence remains weak and shaken because many
Chinese faced job and salary cuts in 2022 and Chinese New Year
bonuses in 2023 were low," said Shaun Rein, managing director at
China Market Research Group. 
    "The result is Chinese are trading down: think Luckin Coffee
over Starbucks, Anta over Adidas. (Consumers) are looking for
good value and cheap product lines and cutting big ticket items
like cars and houses."
    Still, a rapid recovery in domestic travel demand propped up
sales at hotels.
     Marriott International Inc  MAR.O  reported
better-than-expected quarterly results last week as revenue per
available room in mainland China recovered to 2019 levels. 
    Europe's biggest hotel group Accor  ACCP.PA  has also said
China saw a clear acceleration in the quarter, especially after
the Lunar New Year holidays.
        
    NO SUSTAINED IMPROVEMENT         
    Apple Inc  AAPL.O  in its latest quarterly report said sales
in China fell 2.9%. Chipmaker Qualcomm  QCOM.O , which forecast
current-quarter results below estimates, said, "We have not seen
evidence of meaningful recovery (in China) and are not
incorporating improvements into our planning assumptions."
    Truck engine maker Cummins  CMI.N  said truckmakers in China
were ramping production to restock inventory but the company was
"not yet seeing signs of sustained improvement." 
    Car maker General Motors  GM.N , which faces stiff
competition from domestic brands in China's crowded auto market,
said it did not expect an improvement in its income from the
country until the second half.
    "China will be a growth driver for many multi-national
companies but will not be at the high growth rates many analysts
predict," China Market Research's Rein said. 
    

 (Reporting by Aishwarya Venugopal in Bengaluru; Editing by Anil
D'Silva)
 ((Aishwarya.Venugopal@thomsonreuters.com; within U.S.
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