Home News Companies are feeling the business impact of the conflict in the Middle East

Companies are feeling the business impact of the conflict in the Middle East

by SuperiorInvest

  • The war between Israel and Hamas has affected corporate results across a broad spectrum of businesses.
  • Energy companies, logistics companies and retailers have been hit by delays due to war-related disruptions to shipping routes, while restaurants have been subject to boycotts.
  • The disruptions will be more serious the longer the conflict lasts.

Whether it’s sneakers or social media, few corners of business have emerged completely unscathed from the current violence in the Middle East.

In addition to its most significant effects, human suffering and loss of life, the war between Israel and Hamas has affected businesses located thousands of miles away from the scene of the fighting. Recent earnings calls from major companies are filled with references to the effects of conflict.

Businesses began to feel the impacts of international trade in October, when Houthi rebels began attacking ships in the Red Sea in support of the Palestinians. The attacks have disrupted shipping in a waterway that normally carries about 12% of global trade, and analysts have warned that the war could stoke inflation if it continues for a prolonged period.

Here’s what business leaders had to say about how the war is affecting their businesses in the latest rounds of earnings calls and investor communications:

Social media platform Snapchat said the conflict in the Middle East represented a “headwind” for its digital advertising revenue in the fourth quarter, dragging down year-over-year growth by about 2 percentage points, the company said in a statement. letter to investors this week. That contributed to Snap’s stock decline on Wednesday.

The online retail giant is keeping an eye on the situation, although in its earnings report last week, executives said this hasn’t hurt the company yet.

“We are aware of geopolitical issues around the world, especially… in the supply chain and how that could affect shipments to both the United States and Europe,” Chief Financial Officer Brian Olsavsky said in response to a question from a analyst. “We’re just working very hard so that doesn’t affect customers, and we’ll continue to work on that. It is not a material impact estimated in our guidance for the first quarter.”

The owner of KFC, Pizza Hut and Taco Bell said it was losing sales in the Middle East and in predominantly Muslim countries elsewhere in the world. People in several countries have boycotted American companies in protest of US support for Israel.

“During the quarter, top-line sales were impacted by conflict in the Middle East region with varying degrees of impact on the Middle East, Malaysia and Indonesia markets,” CEO David Gibbs said in a conference call on results this week. “This represented a single-digit headwind to Yum!’s overall same-store sales growth. in the fourth quarter. “This trend continued through the first quarter and we expect the impact on sales to diminish over the course of 2024.”

As expected, disturbances in the Red Sea were one of the Belgian oil shipping company’s main concerns.

“We can’t make this call without mentioning the Red Sea,” CEO Alexander Saverys said on an earnings call last week. “We were one of the first companies to avoid the area after Houthi rebel attacks on merchant ships. So far we have not changed our point of view. Therefore, we will continue until further notice going and choosing other routes than the Red Sea, until the situation has become safer for our crew and our ships.

“The impact of diversions can be seen every day in shipping in general and I would say in the shipping of crude oil and petroleum products specifically. “In fact, it is creating more demand for ships due to longer ton-miles and, unfortunately, we expect the situation to last for at least the next two weeks.”

Energy giant Shell’s liquefied natural gas business is working through Red Sea disruptions, CEO Wael Sawan said on an earnings call last week discussing the company’s better-than-expected quarterly results.

“Overall, we are not yet seeing major disruptions to LNG flows due to the reality that, particularly with a portfolio like ours that is blessed with supply points on both sides of the Red Sea as well as demand points, “We are able to optimize and perform swaps throughout the portfolio,” he said.

Disruptions to shipping — including delays at the Panama Canal due to low water levels — loomed large when the international logistics company reported disappointing fourth-quarter earnings earlier this month.

“In the wake of the ongoing conflict in the Red Sea and low water levels in the Panama Canal, global supply chains are facing transit disruptions and vessel diversions, which is causing extended transit times and putting pressure on on global ocean capacity,” said CEO Dave Bozeman. the said. “While the Asia-Europe trade route has been the most affected, the impact is spreading to other routes as shippers adjust routes based on shipping demand.

“As a result, ocean rates increased sharply in the first quarter on several trade routes, including Asia to Europe and Asia to North America. “While the Red Sea disruption continues with no clear timeline for when it will be resolved, pressure on capacity and elevated spot rates are expected to continue at least until the Chinese New Year,” he said.

The coffee chain has been attacked by supporters of both Israel and Palestine, hurting its business in the Middle East and the United States.

“Firstly, we saw a negative impact on our business in the Middle East. Second, events in the Middle East also had an impact in the US, driven by misperceptions about our position,” CEO Laxman Narasimhan said in its most recent earnings conference call on January 30. “Our most loyal customers remain loyal and, in fact, have increased. your spending frequency in the quarter. But we did see a weakening of American traffic. Specifically, our casual American customers, who tend to visit us in the afternoon, came less frequently.”

McDonald’s, which has been the target of boycotts over its alleged support for Israel, has seen sales decline at restaurants in predominantly Muslim areas, the company said in its most recent earnings report last week.

“The most pronounced impact we are seeing is in the Middle East and in Muslim countries like Indonesia and Malaysia.” CEO Chris Kempczinski said in an earnings conference call this week.

The flower delivery service could face higher shipping costs once its current shipping contracts expire, Chief Financial Officer William Shea said on an earnings call last week.

“The biggest unknown is how long the problems in the Red Sea will persist and whether that will affect future negotiations and next year’s holiday season,” he said. “We will begin negotiations for those rates in a few months and a lot will depend on what happens in that area.”

Adidas (ADDAA)

In its fourth-quarter earnings conference call, executives at the German sportswear giant said problems in the Red Sea had delayed shipments by about three weeks and were causing delivery problems, especially in Europe. On top of that, the price of shipping goods was “exploding,” CEO Bjørn Gulden said.

Gulden, however, downplayed its importance in the overall scheme of things.

“It’s not a big deal,” he said.

Executives spent much more time discussing how they sold unwanted inventory from their ill-fated partnership with Kanye West.

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