Japanese supplier disruptions hurt earnings at U.S. businesses

on Wednesday, April 27, 2011

Japanese supplier disruptions hurt earnings at U.S. businesses  Since the 9.0-magnitude earthquake and subsequent tsunami battered Japan on March 11, industry watchers have wondered how the devastation and halts in factory production would affect companies throughout the globe. Businesses began reporting their recent fiscal quarter earnings last week, and now analysts are gauging the actual effects. 

Reuters reports that the ongoing crisis in Japan is cutting into the sales and profits of U.S. companies that Japanese consumers buy products from. Japanese companies supply critical electronic components for businesses around the globe. Japanese consumer products makers and store chains were especially hurt by the effects of the natural disasters, and they're struggling to keep production up.

Luxury leather goods maker Coach said nearly 20 percent of its sales come from Japan; because of the cutbacks in consumer spending there, Coach said it could lose between 2 cents and 3 cents in profit per share in the current quarter, illustrating how the supply chain disruptions and other manufacturing problems are hurting businesses' bottom lines.

Moreover, Coke, a perennial powerhouse on Wall Street, announced earnings that missed analysts' expectations in part because of the lost revenue in the Japanese economy. In a statement, the company said that supplier disruptions were impeding its ability to produce products in time for the summer, when it usually witnesses an uptick in sales.

The shocks to infrastructure in Japan are having far-reaching consequences still, even more than one month after the earthquake and tsunami hit, according to Coke chief executive Muhtar Kent. "Overall, I think the supply chain is still stressed in Japan in terms of being able to supply the market," Kent said in a conference call with analysts.

Consumer goods giant 3M is greatly exposed to the Japanese market through its business model, and it has been forced to reassess its full-year fiscal guidance as it adapts to the ongoing crisis. The Japanese crisis caused the company to cut its first quarter earnings by roughly 3 cents a share; further, it could reduce its full year profit by 10 cents to 13 cents a share.

Nonetheless, businesses are optimistic that the crisis won't hurt earnings in the long-term. "We don't see any long-term damage," Coach chief executive Lew Frankfort told Reuters in an interview. "We believe Japan will return to normal."

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