China is a driver, not a drag, for US comapnies' earnings in Q1

Apr 23 2014, 09:30 IST
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Some of the biggest names in Corporate America, including Coca-Cola Co, have reported strong results from their China operations. Some of the biggest names in Corporate America, including Coca-Cola Co, have reported strong results from their China operations.
SummarySome of biggest names in Corporate America have reported strong results from their China ops.

Economic growth may be slowing in China, and fears of a credit crunch there may be rife, but the world's second-largest economy was a driving force for U.S. company profits in the last quarter.

Some of the biggest names in Corporate America, including Coca-Cola Co, General Motors Co, United Technologies Corp and McDonald's Corp all in the past week reported strong results from their China operations. In some cases this helped to offset weakness in the U.S. or Europe.

Yum Brands Inc, the fast food chain operator which gets more than half of its overall sales in China, on Tuesday reported first-quarter sales at established restaurants in China rose 9 percent, rebounding after an avian flu outbreak and a food safety scare badly hurt sales last year.

"It is still a little surprising how strong China remains, given what you read," United Technologies' Chief Financial Officer Greg Hayes said in an interview in reference to the conglomerate's building systems businesses, which include elevators and climate control equipment.

The initial results this period could soothe concerns on Wall Street that a cooling off of China's booming economy will drag down results of U.S. corporations operating in the region. China's economy expanded 7.4 percent between January and March, its slowest pace in 18 months, and well below the turbo-charged double-digit growth rates that it has often experienced in the past 20 years.

But that growth is still far faster than in the United States, where the economy - which took a heavy blow from a deep winter freeze - is expected to have grown just 1.1 percent in the first quarter, according to the latest Reuters poll of economists.

And lower growth rates in China partly result from a push by Chinese authorities to rebalance the economy so that it is less reliant on export growth and more focused on domestic consumption. That is good for Western companies trying to sell into China.

"The economic growth remains favorable in China," said Tim Ghriskey, chief investment officer with Solaris Asset Management. "While that growth rate has slowed slightly there is still a lot of business being done, especially by larger companies, and U.S. companies are receiving their fair share of that business."

AUTO SALES STRONG

In an illustration of the climate in China, 776 large and small cap Chinese companies are expected by analysts to grow earnings by 14.6 percent over the next 12 months, and revenue by 9.1 percent, according to

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