Companies Are Starting to Worry About the Russia Issue

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The standoff between Russia and Ukraine has been causing pain in the stock market for weeks. Now, companies are beginning to raise the issue as a potential risk. 

Russia has vastly expanded its military presence near Ukraine over the past couple of weeks, raising fear of an invasion and bringing stocks lower. The

S&P 500
is now a bit more than 5% below its February high.

The concern, among others, is that oil prices will take off if the U.S. and other countries place economic sanctions on Russia, which would upset the supply-and-demand balance for the commodity. That would mean even higher inflation, which has begun to burden consumers, not to mention putting the Federal Reserve on course for an aggressive series of interest-rate increases. Plus, higher fuel costs would pressure profit margins for some companies. 

Now, companies’ concern about the situation are beginning to emerge publicly. Mentions of the word “geopolitics” on earnings-call transcripts for companies in the S&P 500 have risen to just under 60 in the past three months, almost double the 30 seen in the three months that ended in December, according to RBC data, but still far below the level of near 140 at the end of 2019.

“Corporate America—and the US equity investment community—are starting to pay more attention to the Russia/Ukraine conflict,” wrote Lori Calvasina, chief U.S. equity strategist at RBC. 

Here are four companies that flagged the Russia issue on their earnings calls, and what management said: 

Alcoa

(AA) CEO Roy Harvey: The “the potential for disruption for conflict could, in the end, impact the demand that you’re seeing as well. And this is more of an indirect impact but could be something that could be an outcome.”

The concern is that if higher oil prices cut into consumer demand as people have to pay more for gasoline, companies’ demand for metals like aluminum could be lower than is now expected. 

Banc of California

(BANC) CEO Jared Wolff: The “economy is very strong. It’s holding up really, really well. I mean nobody seems to recognize that like war is about to break out on the tip of Ukraine and hopefully it doesn’t. But—and hopefully that doesn’t happen and it doesn’t revert back to our economy.”

Reduced economic demand could pressure loan volumes, a challenge for lending-centric banks like

Banc of California
.

Citi (C) CEO Jane Fraser: “We certainly hope Omicron is the final disruptive phase of this pandemic, but there are also quite a few other issues to navigate, whether macroeconomic such as inflation or geopolitical such as tensions with Russia.” 

United Airlines

(UAL) CEO Scott Kirby: “United…lines up being exposed in a good way, exposed in a bad way to geopolitics around the world. We follow them [geopolitical events] closely and pay attention to them. We’re, like everyone, keeping a close eye on the situation in Ukraine and how it develops.”

The cost of aircraft fuel represented about 23% of the company’s total operating expenses in the fourth quarter of 2021, making higher oil prices a potential problem. 

Write to Jacob Sonenshine at [email protected]