Reuters: Cooling China worries some multinationals

Slowing growth in China is emerging as a concern in some of this quarter's earnings reports from U.S. multinationals that have long relied on strong growth in China and other emerging markets to drive their profits. Though China's economic growth is still well above that in other economies, its efforts to cool that growth -- for example, by restricting credit -- are now translating into weaker sales at some U.S. companies that do business there. The trend is not yet widespread and companies are quick to stress the many advantages of China's market, but the commentary this earnings season has taken a more cautious tone. 3M Co's Asia-Pacific sales rose 3 percent in the latest quarter, weaker than in recent results, reflecting softer demand in China. "The Chinese government successfully slowed activity to stem inflation," 3M Chief George Buckley said on a conference call with analysts. "Our China team anticipate continued below-trend growth in the first half of 2012." The maker of Post-It notes, Scotch tape and components for consumer electronics reported net earnings of $954 million, or $1.35 per share, beating estimates by 4 cents a share. One weak spot was the company's display and graphics segment, hurt by what 3M called "deteriorating" demand for consumer electronics. The business showed its largest sales declines in Asia Pacific. Another global manufacturer, Eaton Corp, singled out China as one of several factors behind its sales miss. The maker of electrical control systems and auto and truck components reported a disappointing quarterly profit on Thursday, saying U.S. customers delayed major projects, Europe's economies hurt sales, and tight credit dampened China sales of electrical equipment. "They had to slow growth down because inflation was taking off very quickly," Chief Executive Sandy Cutler said in an interview, adding Brazil and India have also slowed and that China's leaders are "now talking about easing credit, and it's likely to take some time for the easing (to take effect)." U.S. companies have received an earnings boost in recent quarters from emerging economies at a time when many U.S. end-markets were struggling or growing only feebly. Recent economic data, however, hinted U.S. economic growth may be a bit faster than was expected a few months ago. Friday's report is expected to show U.S. GDP accelerated to a 3 percent rate in the fourth quarter, from 1.8 percent in the third. Eaton shares were down 2 percent at $48.54 and 3M was up 1.2 percent at $87.55 on Thursday afternoon.
Reuters