Investors can't anticipate every risk to the companies they own. But some are more transparent than others. Management teams typically dedicate page after page in regulatory filings to spell out all of the conceivable potholes that might occur in the road ahead. Sometimes they come true.
Russia's invasion of Ukraine has sent shares of IPG Photonics (IPGP 1.22%) and EPAM Systems (EPAM 0.47%) plunging. But investors knew they both had employees and operations in a geographic region with a volatile recent history. Investors might not realize another company that could be hurt by the conflict is Philip Morris International (PM -0.58%).
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Brainpower can be shifted to new places
EPAM Systems is a kind of global consultancy. It helps clients with digital transformation by providing software engineering, programming, design, and other technical capabilities. Its founder, Arkadiy Dobkin, arrived in the U.S. after starting his first company in Belarus. Those Eastern European ties continue run deep. He has been instrumental in connecting the talent of the region to western economies.
In its most recent filing with the Securities and Exchange Commission (SEC), it lists about 12,400 professionals in Ukraine, 9,400 in Belarus, and 9,000 in Russia. That's almost two-thirds of its 52,600 global employees. It's why the stock is down 27% since the invasion. It has fallen about 60% from its recent high.
It has discontinued service to customers in Russia and pledged financial support for humanitarian efforts. It's also ramping up hiring in other geographies. Shares of EPAM are well off the lows they reached in early March. However, the impact on the business remains to be seen. The company will report earnings on May 5.
Equipment is harder to move than people
IPG Photonics -- a maker of high-performance lasers used in materials processing, communications, and medical applications -- is in a similar but more difficult situation. Manufacturing operations can't easily be relocated. Its SEC filings show 1,950 employees in Russia and 380 in Belarus -- about 35% of its workforce.
The company has built up inventory in Russia to try to limit disruptions, as well as increased production in Germany and the United States, although management believes it can reduce the reliance on Russia within months. The stock is down more than 60% from its recent high and about 27% since the invasion. Investors should expect to hear more about how well it is mitigating the disruption -- and how long it might last -- when it reports earnings on May 3.
A strategic shift and a loss of customers
One company that investors may be surprised to learn has significant exposure to Russia is Philip Morris International. It has 3,200 employees in Russia, and roughly 10% of the cigarettes the company sold last year were in that country. That amounted to about 6% of revenue.
The company is cutting investments there and has cancelled all product launches. It also cut guidance when it reported earnings last week. Projected earnings-per-share (EPS) were chopped from between $6.12 and $6.30 per share to a range of $5.45 to $5.56. Analysts have adjusted but still expect the high end of the range. Despite the guidance cut, the stock is down less than 2% since the day of the invasion. If the conflict persists, shareholders may have more pain ahead.
