Middle East, China still two major headwinds for food chains
More food brands and international chains are feeling extended pressures due to ongoing geopolitical conflicts and China's own consumer markets. Jefferies Managing Director of Equity Research Andy Barish and Bank of America Managing Director for Equity Research Bryan Spillane sit down with Yahoo Finance Live to elaborate on which multinational brands have the most exposure.
"Most if not all of the exposure to the Middle East is through license or franchise. But clearly, it is the... the large multinationals like McDonald's (MCD), like Starbucks (SBUX), Yum! Brands (YUM) that in particular have seen some pushback against American brands given the conflict going on," Barish says.
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Editor's note: This article was written by Luke Carberry Mogan.
Video Transcript
JOSH LIPTON: Andy, one big theme I know for your space would be geopolitics to some extent, Andy. I think it's some of the names you cover like McDonald's, which is called that out as a headwind. How does that playing out across your coverage universe, Andy? What are some of the ripple effects from that specifically you're seeing?
ANDY BARISH: Yeah. It's not a huge part of anyone's business in particular. Most, if not all, of the exposure to the Middle East is through license or franchise. But clearly, it is the large multinationals, like McDonald's, like Starbucks, Yum Brands, that, in particular, have seen some pushback against American brands, given the conflict going on.
I would also be remiss not to mention China coming more into the equation depending on what happens in November with the election, obviously, which is a little bit of a larger exposure for some of those same companies that I just mentioned.
MADISON MILLS: Well, I'm curious then, going back to you, Bryan, to what extent do geopolitical factors play into these CPG names as well, particularly when it comes to China? I know that a lot of these kind of dividend-paying stocks are within your coverage area. Do you see the China story as a significant headwind for those names moving forward?
BRYAN SPILLANE: You know, China's been the biggest negative driver for Estee Lauder over the last two years. And that's been a combination of some company specific issues in China, as well as the macro there. We look at Procter & Gamble, right, which China softness was about 100 basis point drag to their organic sales in their fiscal second quarter.
So China itself has played again for us. It's mostly selling products in country, so it's more of a consumer demand. And I say it's probably been less geopolitical and more just the macro-- the consumer tightening their belts to a certain degree and normalization of travel. But again, it's the multinationals, and Estee Lauder probably the most specific to China.
And I would say, just in terms of Middle East and Malaysia, Indonesia, some of the other countries where there's been some protests related or consumers acting or taking actions against US brands, it's really been the beverages, like Coke and Pepsi have called that out as a source of weakness in this first quarter and potentially now as we go through Ramadan and March.
