Aflac Inc. (AFL) insurance, Rambus Inc. (RMBS) memory-chip interfaces and Coach Inc. (COH) leather handbags are among the products from U.S. companies at risk for lost sales in Japan after the country’s worst earthquake ever.
Japan generated about 75 percent of Aflac’s 2010 sales, the most among U.S.-based companies with a market value of at least $100 million, according to data compiled by Bloomberg. At least 35 companies including Rambus, Coach and jewelry-maker Tiffany & Co. (TIF) had 15 percent or more of sales from Japan, the data show.
Quake disruptions range from “substantial” damage to a Texas Instruments Inc. (TXN) plant in Miho, Japan, that will hurt sales in two quarters to possible shifts in consumer behavior as the world’s third-wealthiest nation rebuilds. Coach and Tiffany said they both had shut some stores in Japan.
“Even for consumers who have the means, they may not be in the mood to open up their wallets and spend conspicuously,” said Lawrence Creatura, a Rochester, New York-based fund manager at Federated Investors Inc. (FII), which oversees about $360 billion.
U.S. manufacturers whose Japanese corporate customers are idled by the March 11 earthquake and tsunami in the northern part of the country are among those that may feel the pinch most quickly. Concern that a damaged nuclear plant may experience a meltdown is weighing on investors and consumers.
Rambus in Japan
Rambus’s biggest sources of Japanese sales include Toshiba Corp. (6502) and Elpida Memory Inc. (6665), both of which have had some plant shutdowns, and Sony Corp. (6758), said Jeff Schreiner, a Capstone Investments Inc. analyst in San Diego. In 2010, 36 percent of Sunnyvale, California-based Rambus’s sales came from Japan. A spokeswoman, Linda Ashmore, declined to comment.
Aflac, the supplemental health-insurance company, has been in Japan since the 1970s, according to its website. The Columbus, Georgia-based company said in a statement yesterday it was keeping its forecast for 2011 operating earnings unchanged “at the low end” of an 8 percent to 12 percent increase.
“We expect Aflac Japan sales will only be minimally impacted by these events,” Aflac said, hours before firing comedian Gilbert Gottfried, the voice of its duck mascot in the U.S., after comments he made about tsunami victims.
Aflac fell $3.01, or 5.6 percent, to $50.89 at 4:15 p.m. in New York Stock Exchange composite trading for the second-worst drop in the Standard & Poor’s 500 Index. Rambus slid 41 cents, or 2.1 percent, to $18.77 on the Nasdaq Stock Market.
Worse Than Kobe
The temblor’s drag on the economy may be greater than that of the Kobe earthquake in 1995, Shun Maruyama, a Credit Suisse AG equity strategist in Tokyo, said yesterday in a report.
“We also expect consumers to curb consumption for a long period across a wide swath of the country, including the Tokyo metropolitan area,” Maruyama said.
Golf may be among the industries at risk in a nation whose $38,177 in unadjusted per-capita gross domestic product in 2009 trailed only Luxembourg and Norway. After the U.S., Japan was the second-largest market for Carlsbad, California-based Callaway Golf Co. (ELY) in 2010, accounting for $164.8 million in sales, or 17 percent of revenue.
“In a niche that has frozen up, a consumer discretionary product isn’t going to do anything,” said Casey Alexander, an analyst for Gilford Securities in New York who cut his rating today to “sell” from “hold.”
Japan has the second-most active golfers after the U.S., with about 9 million, according to KPMG Advisory Ltd.
Coach shut 20 of its 165 stores in Japan and cut staff and shortened hours at others, said Andrea Resnick, a spokeswoman for the New York-based company. Tiffany, also based in New York, has 230 stores worldwide and closed some of its 55 outlets in Japan, said Mark Aaron, a spokesman, who declined to elaborate.
“The situation is fluid,” Aaron said. Tiffany had 19 percent of sales in Japan and Coach had 20 percent, according to the Bloomberg data for their most-recent fiscal years.
Coach dropped $1.09, or 2.1 percent, to $52.02 at 4:15 p.m. in New York trading. Tiffany slid 3.6 percent to $57.68.
Japanese consumer sentiment may drop as much as 20 percent, about the same as in the U.S. following Hurricane Katrina in 2005, David Schick, an analyst with Stifel Nicolaus & Co. in Baltimore, wrote in a note yesterday. That sentiment likely will recover in three months, just as it did with Katrina, he said.
The effect on U.S. trade overall will be small, said Andrew Rose, associate dean of the Haas School of Business at the University of California, Berkeley. Some companies such as Caterpillar Inc. (CAT) may gain by selling equipment to help Japan rebuild, he said. Other U.S. companies that compete with the Japanese may benefit, he said.
“In terms of American commercial interests, this is not a particularly huge deal,” he said. In 2010, Japan bought $60.5 billion of U.S. goods, according to the U.S. Commerce Department, and sold $120.3 billion to the U.S.
Some quake disruptions for U.S. companies will involve those with their own operations in Japan, such as Dallas-based Texas Instruments.
The damaged plant located about 40 miles (64 kilometers) northwest of Tokyo produced 10 percent of Texas Instruments’ output by revenue and won’t be back to full shipments until September, according to TI, reported getting 9.8 percent of 2010 revenue from Japan.
Japan provides about 40 percent of technology components worldwide, and plants had been at almost full capacity before the quake, said Paul Martyn, vice president of marketing in Chicago of BravoSolution, a Milan, Italy-based supply management firm.
“Prices are going to go up and lead times are likely going to increase,” Martin said in a telephone interview. “It’s going to be a double whammy for U.S. companies that depend on those Japanese components.”
Freeport-McMoran Copper & Gold Inc. (FCX) doesn’t expect a significant impact to sales of copper concentrates to Japan’s Pan Pacific Copper Co., Mitsubishi Materials Corp. (5711) and other copper-smelting companies, said Eric Kinneberg, a spokesman. The Phoenix-based company got 18 percent of 2010 revenue from Japan.
While the quake-ravaged areas in northern Japan aren’t significant destinations for business or leisure travel, U.S. airlines face risks in the Japan disaster, according to Philip Baggaley, a Standard & Poor’s credit analyst in New York.
“The current uncertainty and fears related to a possible meltdown and other problems at stricken nuclear power plants could deter travelers,” he said. United Continental Holdings Inc. (UAL), the parent of United and Continental airlines, is the biggest U.S. carrier across the Pacific, based on passenger traffic, followed by Delta Air Lines Inc. (DAL) and AMR Corp. (AMR)’s American Airlines.
“Outbound Japanese travel is, we believe, also likely to be significantly affected, as citizens focus their attention on events in their home country,” Baggaley wrote.
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