| NEW YORK, April 30
NEW YORK, April 30 Turmoil in Ukraine and a
series of Western sanctions on Russia are starting to hurt some
U.S. corporations doing business in the region, with the latest
round of U.S. penalties threatening to complicate matters
The companies have expressed concern about the weak Russian
economy, the rouble's decline and the potential for the crisis
to worsen. There are also worries about a possible backlash in
Russia against Western products.
U.S. Treasury Secretary Jack Lew said on Tuesday that
international sanctions on Russia were putting pressure on
Russia's economy, and more actions could be taken if Moscow did
not step back from the Ukraine crisis.
Companies began feeling the pain in the first quarter, "but
it seems to be worse and more uncertain and spreading in the
second quarter, which will obviously impact future earnings
reports," said Clement Miller, investment strategist at
Wilmington Trust Investment Advisors.
McDonald's Corp, which imports about half of its
food used in its Russian restaurants, said the weaker rouble
hurt restaurant margins in Russia by 2 percentage points,
dragging down the company's overall margins in Europe.
"So if you assume the rouble 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," McDonald's Chief Financial Officer Pete
Bensen said on the company's first-quarter conference call.
McDonald's, which operates more than 400 restaurants in
Russia, was the first international fast-food chain to tap the
Russian market when it opened in Moscow's Pushkin Square before
the collapse of the Soviet Union. McDonald's sees Russia as one
of its top seven major markets outside the United States and
Canada, according to its 2013 annual report.
Ford also pointed to pressure on margins "because even
though we are working hard to localize more and more parts we
still have a substantial portion of the vehicles that we produce
there that have imported components," Chief Financial Officer
Bob Shanks said in an interview.
Shanks, who also cited lower sales volume in Russia due to
the country's overall weakened economy, said the geopolitical
issues in Russia "so far haven't had much of an effect. But
we'll have to wait and see what comes down the road."
Ford Sollers, a joint venture between Ford and Russian
carmaker Sollers, announced earlier this month that it
was cutting 700 staff in its plant near St Petersburg due to
Russia's deteriorating economy and weaker rouble.
FALLOUT FROM WEAK ROUBLE
The worst East-West crisis since the Cold War ended in 1991
is damaging Russia's faltering economy. Surveys have suggested
business confidence in the country is now the lowest since 2008,
capital outflows have surged and the rouble is down about 8
percent against the dollar this year.
The weakening rouble has made it more costly for foreign
companies with Russian operations to use the currency to import
necessary goods or commodities.
Even companies that have yet to see significant harm to
sales or profits from the tensions warn that the path ahead is
uncertain, especially if escalating tensions lead to broader
instability in eastern Europe and beyond.
"We are hoping for a peaceful resolution, but business
confidence around the world could dampen, and trade and world
GDP could slow should the situation deteriorate," Caterpillar
Inc Chief Executive Doug Oberhelman said in a statement
with the company's quarterly results.
Caterpillar, which celebrated 100 years in Russia in 2013,
says Russia and the Commonwealth of Independent States are
"among the most dynamic developing territories for Caterpillar."
The United States on Monday announced a new round of
sanctions aimed at business leaders and companies close to
Russian President Vladimir Putin, while the European Union
followed up on Tuesday by naming 15 Russians and Ukrainians to
its blacklist, moving to freeze assets and deny visas.
In response, Putin warned that he could reconsider the
participation of Western companies in Russia's economy,
including energy projects, if sanctions continued.
While it was not clear what, if any, retaliatory steps the
Russian leader might take, some experts warned of a backlash
from Russian consumers. They speculated the sanctions could
potentially leading to shunning of U.S. brands.
"I suspect there will be an adverse impact on U.S. companies
operating in the market," said Constantin Gurdgiev, an adjunct
professor of finance at Trinity College Dublin. "Unfortunately,
the bitter aftertaste of the sanctions is going to stay in
popular minds for a long time."
The deputy speaker of the Russian parliament, Vladimir
Zhirinovsky, known for his anti-Western rhetoric, has already
demanded that McDonald's pull out of Russia.
Credit card company Visa Inc, which has 100 million
cards in Russia, stopped providing services to two Russian banks
after U.S. sanctions in March. The company said the sanctions
were hurting its transaction volumes in Russia and that it
expected them to have some impact on its results.
Chemicals maker DuPont said its position in Ukraine,
while only a small percent of its sales, represents an important
part if its growth plan. Ukraine seed sales fell below DuPont's
expectations in the quarter, the company said.
"Given our uncertain political situation there and the
tightened credit markets, we are seeing seed-buying decisions
being reduced or deferred," DuPont Executive Vice President
James Borel said on a conference call with analysts.
To be sure, some U.S. companies with a substantial presence
in Russia have avoided any serious problems so far.
PepsiCo Inc, which has nine of the top 50 packaged
food and soft drink brands in Russia, posted a 10 percent
increase in first-quarter revenue in the country. PepsiCo CEO
Indra Nooyi characterized the business climate in Russia as
"very friendly," adding that "we have great relationships with
Some companies are even seeing a silver lining in the
crisis. Raytheon Co Chief Executive Thomas Kennedy said
tensions between Russia and Ukraine have boosted demand for the
weapons maker's products in eastern Europe.
(Additional reporting by Ben Klayman in Detroit, James B.
Kelleher in Chicago, Aman Shah in Bangalore, Phil Wahba and
Ernest Scheyder in New York and Andrea Shalal in Washington,
editing by Ross Colvin)