As the crisis in Ukraine steadily deteriorates, the prospect of a new Cold War between Russia and the United States has become a real possibility. Just recently, the U.S. has warned of additional sanctions, while the Russian military drills on Ukraine's border.
Over the past several weeks, many leading American companies have referred to increasing tensions with Russia on their conference calls. Below are some excerpts from this quarter's calls.
Companies warning of potential problems
Talking about the company's outlook for sales going forward, Caterpillar's (NYSE:CAT) VP for Strategic Services noted the impact that Russian tensions might have on forecasts:
But there's also plenty of downside risk that could cause it to be below $56 billion. A couple examples include geopolitical. While we are hopeful that the situation in Russia and the Ukraine will be resolved, if it does get worse and has an impact on business confidence, world trade, and world growth it could certainly be negative for us.
McDonald's (NYSE:MCD) CEO Don Thompson reported that its business is very mindful of events in Russia and Ukraine,
First part relative to Russia, one of the things at McDonald's and we have done this in all of the markets around the world, first and foremost will always be the safety of our employees and our guests. That is of the highest level of importance to us. There has been no major incidents related to their safety in these current markets whether it be Russia, Ukraine or Crimea or anything that has happened in the current situation.
Our restaurants generally are operating as normal. Some are temporarily adjusting their evening hours based on customer traffic. And we had three restaurants in Crimea that have been closed due to suspension of necessary financial and banking services. So that kind of gives you a state of relative to Russia.
McDonald's CFO Pete Bensen added,
So locally they had a 200 basis point impact to their margins in Russia from that devaluation that translated into about a 55 basis point impact on total Europe company-operated margin solely from the devaluation. So if you assume the ruble is going to stay at this depressed level the rest of the year, that is something we are going to be battling with for the rest of the year in our European margins.
That said, Russia has some of our most profitable restaurants around the system. So they are about 10% of our consolidated margins, but they are less than 5% of our overall operating income. So in the grand scheme of things to the overall profitability, they are less than 5%, but they do impact the margin line somewhat disproportionately because of those imports and because of the high volumes and the high margins they do run.
Similarly, UPS (NYSE:UPS) CEO Scott Davis warned that further unrest in Ukraine could negatively affect its business:
While we have yet to see the first-quarter US GDP numbers, it is safe to say that growth will be slower due to weather. The good news is that spring has arrived and we expect the pace of US economic growth to pick up as 2014 progresses. In Europe, the economy is showing signs of recovery and faster growth. Yet if the situation in the Ukraine deteriorates, that pace may slow. Economic expansion in Asia has remained steady with mid-single digit growth and in Latin America, expectations call for increased merchandise exports.
Nike (NYSE:NKE) CEO Mike Parker also sees potential problems in the near future:
And with respect to Russia...I mean, right now we have not yet seen any impact to our Business. Obviously, we are hoping that that solution -- that a resolution comes to that situation peacefully. And right now, we are focused on the things we can control, which is making sure we connect with our consumers, and make sure we provide them with innovative products.
I think in terms of that business for us, it is less than 25% of our CEE [Central and East European] business. So, at this stage, we think that whatever happens there, we will obviously be able to manage it across our portfolio.
Visa (NYSE:V) -- perhaps unsurprisingly given recent U.S. sanctions on financial activities -- devoted considerable attention to Russia on its call. The company's CFO Byron Pollitt touched on it in his opening remarks:
A word on Russia and Ukraine, we have clearly seen a drop off in cross-border volume, and sanctions are expected to have some impact on volume. Our guidance assumes several pennies of EPS impact for the fiscal year. We are fully engaged with all parties involved, and will continue to adjust our outlook as the situation clarifies over time.
And the company's CEO, Charlie Scharf, followed up with even more comments relating to Russia:
But we are hopeful that there is still opportunity for Visa to participate in the growing electronic payments business in Russia. We will not understand the impact on our business and potential future until the laws and regulations are completed, but we remain committed to finding ways to provide our services, as long as US government and Russian governments allow.
Companies that are closely monitoring events
Quite a few companies didn't seem particularly concerned about the region, though they assured analysts that they are keeping an eye on future developments.
JPMorgan Chase CFO Marianne Lake, when talking about the global credit environment, reported:
The credit environment continues to be benign and we believe our exposure to Russia is manageable. We are appropriately reserved based on what we know today and we are closely monitoring the situation.
Boeing (NYSE:BA) CEO Jim McNerney told analysts that his company was well-prepared for a variety of possibilities,
Managing a global supply chain is what we do. It's what we do every day. And there are potential disruptions in many places around the world. Right now everybody's focused on Russia, as we are. And we have good contingency plans in place if some unlikely but possible outcomes occur there.
Johnson & Johnson's CFO was also monitoring events, though he didn't feel the company would be seriously affected, one way or another:
The only thing we've seen so far that's a little bit of a concern is that there does appear to be some funding restrictions and governmental buying patterns with respect to capital budgets in the hospitals. But overall, it's not a very significant piece of the overall business.
With respect to our total BRIC business, it's relatively a small piece of the business. Obviously, China and Brazil drive the majority of our growth and the majority of our business in the BRIC markets.
News out of Russia wasn't entirely all doom and gloom, however, Coca-Cola CEO Muhtar Kent saw a positive impact from the Olympics:
Highlights of actions we took in this past quarter included a terrific Sochi Olympics campaign across all over Russia, supported by solid trade activations that resulted in 7% sparkling volume growth, and 9% Coca-Cola growth, the 17th consecutive quarter of growth for brand Coke.
What are America's energy giants saying?
It will be very interesting to see what ExxonMobil and Chevron have to say when they report earnings at the beginning of May. Toward the end of 2013, Chevron signed a 50-year agreement with the Ukrainian government to develop oil and gas there. And ExxonMobil has numerous projects under way across Russia and adjacent regions. Relative to other American companies, these two giants are greatly affected by geopolitical events in the region. Investors will certainly be listening to their assessments of recent developments.