From Hormuz to headquarters: Iran war ripples through corporate balance sheets, blurs forecasts
The cautious tone during earnings season highlights the pressure on businesses already hit by U.S. tariffs, high input costs and weak demand before the conflict erupted in late February.
While some companies stuck to their full-year forecasts, executives pointed to rising transportation and raw material costs and sharply reduced visibility, particularly linked to disruption in the Strait of Hormuz. Dulux paint maker AkzoNobel said the conflict had increased supply costs, but higher pricing and cost savings had helped it beat market expectations.
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“Given the disruption in the Strait of Hormuz, our raw material basket will increase in the high teens (percent),” CEO Greg Poux-Guillaume told Reuters, saying the full impact would be felt in the next two quarters.
AkzoNobel’s branded products, used on cargo ships and Formula 1 cars, provide greater scope to pass on price increases than their counterparts that are more exposed to chemicals.
HIGH PRICES, LOW FORECASTS Investors and economists are watching to see whether companies can absorb the shock or whether prolonged uncertainty over energy, transportation and geopolitics will force more firms to raise prices further or rein in forecasts. Much depends on how long the conflict lasts and whether the strait, a conduit for about a fifth of global oil and LNG flows, can be fully reopened by easing supply restrictions.
“Persistently higher energy prices will significantly increase risks. First-quarter results reflect only one month of Iran-related impacts, making forward guidance and management commentary particularly important,” said Larry Adam, chief investment officer at Raymond James. US stocks rose and oil prices rose on Wednesday after Iran seized container ships in the strait.
“The longer this battle goes on, we will see companies with less pricing power reduce guidance,” said Brian Madden, chief investment officer at First Avenue Investment Counsel.
“And we will see companies with pricing power pass on price increases to consumers and businesses, potentially leading to higher inflation.”
BABY FOOD SHIPMENT INTERRUPTED
According to a Reuters review of company statements since the start of the war, 21 companies withdrew or cut financial guidance, 32 signaled price increases and 31 warned of a financial blow from the conflict. TE Connectivity Chief Executive Officer Terrence Curtin told Reuters that if the war drags on it will have to pass on higher freight and prices of petroleum-based products such as resin to customers.
French food group Danone highlighted how pressures were filtering through supply chains, reporting that sales growth in the first quarter beat expectations but slowed sharply from late last year, noting a European baby food recall as well as war-related disruptions to baby food shipments.
Elevator maker Otis Worldwide said sales of new equipment were hurt by war-related shipping delays and tariffs. Dettol soap maker Reckitt warned of low margins in the first half, citing high oil prices, sending its shares to October 2024 lows, and cigarette maker Philip Morris said it was factoring in a small impact from the Middle East conflict, although it did not expect a long-term impact.
Also Read: Iran set the lifting of the blockade of Hormuz as a condition for the talks, and said: ‘If you break the blockade, we will negotiate’
Travel companies are among the hardest hit as high jet fuel prices force airlines and tour operators to increase fares, add fuel surcharges or ground flights, while geopolitical tensions erode consumer confidence. German tourism group TUI cut its full-year operating profit forecast and suspended its revenue guidance.
“The ongoing conflict in the Middle East and uncertainty regarding its duration continues to limit visibility in the near term and prompt consumers to exercise caution,” the group said in a statement. he said. US carrier United Airlines also forecast second-quarter and full-year profits to be below Wall Street forecasts on Tuesday, citing pressure on demand.
Despite the challenges facing airlines, plane maker Boeing has said customers do not want to delay deliveries of jet planes. On the contrary, they want to jump the line if an opportunity arises. Resource companies are also feeling this pressure. Diverse miner South32, hit by high freight rates and raw material prices, said it had taken measures to mitigate potential supply chain impacts from the conflict and was monitoring the situation closely, although it is not currently experiencing a shortage of diesel fuel.
The Iran war is creating new uncertainties even for companies that started the year with solid order books and pricing power. On Tuesday, GE Aerospace CEO Larry Culp said the company would have raised its forecast were it not for the current uncertainty, and 3M warned that higher oil prices could lead to a 50 basis point increase in product prices.
