WILMINGTON (BLOOMBERG) - Caterpillar Inc manufactures huge yellow bulldozers. Nvidia Corp makes minuscule computer chips. Their products have little in common, but their earnings on Monday (Jan 28) pointed to the same direction: demand in China is slowing down for a widening type of goods.
Since Apple Inc shook investors in early January with a warning, a picture is starting to emerge on where the cooling in the world's second-largest economy will hurt in the coming year. It includes Stanley Black & Decker Inc's tools, PPG Industries Inc's automotive coatings, Intel Cor.'s processors and Trinseo SA's synthetic rubber tires.
Nvidia and Caterpillar were the latest examples of this anecdotal evidence. Here's a rundown of what we've heard so far from US and European businesses:
Caterpillar, an industrial bellwether, sent a gloomy signal on Monday when it posted its biggest quarterly profit shortfall in a decade, and provided a 2019 forecast that trailed some of Wall Street's estimates. Sales of excavators will be flat year-over-year in China, the Deerfield, Illinois-based company said.
Shares of Japanese rivals Komatsu Ltd and Hitachi Construction Machinery Co each lost more than 4 per cent in Tokyo. In China, Sany Heavy Industry Co. and other heavy equipment makers fell at the open.
Stanley Black & Decker CEO Jim Loree wasn't shy about raising the alarm bells on China last week, saying it was facing slowing economic growth there, along with most of the rest of the world. The previous week, paint maker PPG talked about "sluggish industrial activity in China" among pressures that the company will hit the first half of 2019.
Santa Clara, California-based Intel, whose processors are the main component in most of the world's personal computers and servers, cited softness in China among the reasons for its lower-than-expected annual forecast last week. Nvidia, the biggest maker of chips for computer graphics cards, echoed those comments on Monday, saying that "deteriorating macroeconomic conditions, particularly in China, impacted consumer demand" for its products.
In Japan, chip-equipment manufacturer Tokyo Electron Ltd dropped as much as 2.9 per cent, while Advantest Corp slid 6 per cent. Samsung Electronics Co fell 1.1 per cent in Seoul, while Taiwan Semiconductor Manufacturing Co declined 2 per cent.
Car sales in China fell last year for the first time in more than 20 years.
"China is under threat, for sure," Volkswagen AG Chief Executive Officer Herbert Diess said in a Bloomberg TV interview in Davos, Switzerland, last week. "This year will be challenging."
Ford Motor Co posted a fourth-quarter loss of $534 million in China last quarter. Wholesales by the carmaker's China joint ventures - a measure of how many vehicles are shipped to dealers - plunged 57 per cent during the period. By the end of last year, only about a third of the company's dealers were profitable, Jim Farley, Ford's president of global markets, said on a Jan 23 earnings call.
US auto-parts supplier Lear Corp. offered more color on China on Friday. Lear, whose biggest customer is Ford, said it expected orders for parts like seating systems to fall more than 10 per cent this year.
"They confirmed auto weakness in China," Douglas Rothacker, an analyst for Bloomberg Intelligence, said in an interview. "Lear offers a good read across the industry for expectations in 2019."
Continental AG, Europe's second-largest car parts maker, warned earlier this month that Chinese auto production might stagnate at best this year, leading to a muted earnings forecast for 2019.
BRIGHT SPOT: RETAIL
So far, luxury and consumer goods have been spared. Jeweler Tiffany & Co enjoyed strong growth in China in the final two months of the year.
"The holiday period has actually been very positive --China is a big area of focus," Tiffany's chief executive officer Alessandro Bogliolo said in an interview on Jan 18. He said a boost in marketing spending there about a year ago has started to pay off. "We have seen an acceleration in mainland China."
Starbucks Corp is opening a new stores every 15 hours in the country. Executives at consumer giant Procter & Gamble Co said last week that they haven't seen any sign of a slowdown in the country, although "things in China can change quickly." Investors will scrutinize the financial results of Paris-based luxury giant LVMH Moet Hennessy Louis Vuitton, due Tuesday, for any hint of the outlook for luxury in the country.