Estee Lauder among multinationals hit by China lockdowns

In this Nov. 2, 2011 file photo, Estee Lauder products are displayed at a department store in S. Portland, Maine. Estee Lauder’s fiscal first-quarter performance topped Wall Street’s view, Wednesday, Nov. 2, 2022, but the beauty products company lowered its full-year outlook partly on concerns tied to the zero-tolerance COVID-19 policy in China, a key market for its sales. (AP Photo/Pat Wellenbach, File)

The devastating effects of COVID-19 lockdowns in China overshadowed a strong quarter at Estee Lauder and shares of the cosmetics company tumbled before the opening bell Wednesday.

International companies that rely on sales in China have been hammered by Beijing's “Zero COVID” policies that have mandated strict periods of isolation for millions of people.

On Wednesday, Estee Lauder lowered its annual adjusted per-share profit expectations from between $7.39 and $7.54, to between $5.25 and $5.40. That's far below Wall Street projections for per-share profits of $7.35 per share, according to a FactSet survey.

Shares fell 6% in early trading.

Bigger companies have not been spared from the effects of China's strict virus policies.

Access to an industrial zone in the central Chinese city of Zhengzhou was suspended Wednesday after the city reported 64 coronavirus cases and workers who assemble Apple iPhones left their factory in the zone following outbreaks.

Starbucks reports earnings Thursday. In its last quarterly financial report, the company said same store sales in China plunged 44%.

McDonald's which reported declining comparable store sales in China late last month, said 33 cities with 65 million residents were either in full or partial COVID-19 lockdowns during the quarter.

There have been reports that China may soon ease restrictions in its fight to curtail infections, which drove markets there higher Wednesday.

“The power of social media and retail investors was evident after stories circled on China’s zero COVID policy and if Beijing is preparing to phase it out,” Stephen Innes of SPI Asset Management said in a commentary.

“Despite new lockdowns being announced ... a China reopening is the biggest ticket in town, and it’s better to show up early rather than late to the reopening party,” Innes said.

Aside from China’s COVID-19 restrictions, Estee Lauder said Wednesday that travel curbs and tightening inventory in Asia and the U.S. will likely weigh on the company during the first half of the year.

The New York City company earned $489 million, or $1.35 per share, in its fiscal first quarter. Removing restructuring costs, earnings were $1.37 per share, edging out Wall Street projections by 2 cents, according to analysts polled by Zacks Investment Research.

Estee Lauder Cos. foresees second-quarter earnings in a range of $1.19 to $1.29 per share. Analysts surveyed by Zacks had been projecting $2.84 per share.