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These US companies are likely to post weak earnings thanks to China’s slowdown

AP Photo / Elizabeth Dalziel
Chinese coal workers in Inner Mongolia
By Naomi Rovnick
ChinaPublished This article is more than 2 years old.

Having a big business in China used to be good for a company’s stock price. Not anymore. Alcoa kicked off the US earnings season with a glum report that its profits may falter because of China’s slowdown. Here is a selection of other big names that look vulnerable.

General Motors

Slowdown puts the brake on GM sales. General Motors, alongside its non-US rivals, might have a bad China slowdown, as the Wall Street Journal reports (paywall).  The Buick and Cadillac maker, which releases earnings October 31, just disclosed that its China sales grew 1.7% in September compared to the same month last year. That was the slowest increase in eight months. GM and its joint venture partners are China’s automotive market leaders. They sold a record 2,547,171 vehicles in China in 2011, or one car every 12 seconds.

Caterpillar

Caterpillar crawls? The construction and mining equipment maker has benefited from China’s thirst for resources and rapid urbanization. No longer: “Miners around the world are delaying their capex plans due to depressed commodity prices and excess inventory (mostly in China),” analysts at Piper Jaffray wrote in a note published October 9. Piper believes the manufacturer’s earnings, due October 22, will come in below Wall Street consensus.

Applied Materials

Chipmaker dips. Applied Materials, the world’s largest semiconductor manufacturer, gets 11% of its sales from China and 73 % from Asia, according to its third quarter results. Its new business from China is slowing down. The nation provided 6% of Applied’s new sales over the summer, down from 22% in the same period a year ago. Applied has previously talked up (video) its opportunities in China, in everything from desktop computers to renewable energy. In 2010, it moved its chief technology officer to Beijing. However, the firm just announced it was cutting up to 9% of its workforce.

Consol Energy and Peabody Energy

Coal outlook darkens. As the Wall Street Journal reports here, American coal mines are feeling the pain as China produces less steel. Public companies to watch include Appalachian coal miner Consol Energy, which has not yet scheduled its next quarterly update, and Peabody Energy, which announces October 22.

On the bright side

Food firms appear fine. Walmart has said (video) its business will be unaffacted by falling growth in China. And Yum Brands is also doing OK: its KFC restaurants are resoundingly popular in China because fried chicken in seasoned batter is already a staple food and Yum has given it a Western, aspirational twist. Midmarket food firms can thrive when growth dips, as people switch to eating at home or downgrade from expensive restaurants to cheaper ones. Walmart’s China business is tilted at the urban middle classes, who have money, if a bit less these days. And China does not have a strong domestic food retail industry, so providing urbanites with more food variety on a budget is Walmart’s big opportunity. The slowdown could help.

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