China Bites Again With 3M, Caterpillar Warning of More Pain

(Bloomberg) -- The economic bellwethers sent a warning for the rest of 2019: Expect more challenges in China.

3M Co. cut its profit forecast for the second time in three months on Thursday, citing among other reasons headwinds in its China business. Just a day earlier, Caterpillar Inc. flagged market share losses in the country and “aggressive pricing” from competitors.

The challenges faced by the U.S. industrial giants underscore the complex picture emerging from first-quarter results so far. Caterpillar said demand for construction equipment is still expected to grow this year in China -- just not for its own yellow heavy machines. Global consumer and luxury companies such as Coca-Cola Co. and L’Oréal SA remain sanguine about the country.

Yet China is back at the top of list of concerns amid the recent downshift in the global economy, signals from the Chinese government that it might not implement major stimulus measures that many hoped for, and uncertainties as trade negotiations between the U.S. and China enter a crucial stage.

Here’s a rundown of what we’ve heard so far from the companies.

  • 3M’s sales in China and Hong Kong slumped 4.3 percent last quarter, excluding the impact from currencies. The St. Paul, Minnesota-based company, which is known for its Post-Its but makes goods ranging from auto parts and electronics, has been hit by a slump in car sales in the country as customers reduced their inventories. “The automotive slowdown in China was one particular case where we saw significant impact in our growth from channel,” CEO Michael Roman said on a conference call.
  • The decline in car sales also continued to hit U.S. part maker BorgWarner Inc., which saw expects “challenging” conditions in China for the rest of the year.
  • Construction is still growing in the world’s second-largest economy, but there are signs that excavator sales are in distress: Bloomberg Intelligence estimated in February that they may drop 40 percent from a year earlier as replacement demand shrinks. Overall Caterpillar expects sales of its equipment in the country will be unchanged, and that it will lose market share.
  • Truckmaker Volvo Group offered a completely different perspective: “It’s China that is the shining star” in Asia, executives said on a conference call Wednesday. China is a major driver for the Swedish company’s construction equipment, which saw in increase in deliveries of machines and trucks last quarter. With markets slowing outside of China, Volvo’s reliance on the country for growth is increasing, according to Bloomberg Intelligence.
  • Avery Dennison Corp., a diversified industrial company, said Thursday that demand in China was softer than it expected at the beginning of the year.

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