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Downturn in Australia catches US chiefs by surprise

THE earnings season in the United States has been peppered with negative commentary about Australia's weak economy.

Last week, the chief executive of Illinois Tool Works, a 100 year-old manufacturer and Fortune 200 company, told an audience of US analysts that the Australian economy was ''slowing significantly'', and that that the downturn had taken his company by surprise.

''I think the one that was the weakest, that probably told the story for us, was Australia,'' said David Speer, the chairman and chief executive of Illinois Tool Works, a diversified manufacturer that makes products for the construction and housing industry as well as polymers and fluids, surfaces for benches, flooring and furniture typically sold in shops.

''Some of the economic issues there, the housing market has slowed significantly.

''Australia is probably the one that caught us with the biggest surprise. And in the retail segment down there where we have reasonable presence, this is where we expect to see some pretty good retail activity, and that just hasn't picked up at this stage.''

He has been joined by the chief executive of the US cereals company Kellogg's, one of the largest food companies in the world, who told analysts last week that internal operating profits in the Asia-Pacific had decreased by 1 per cent due to weakness in Australia.


The chief executive, John Bryant, commented during first-quarter earnings briefings that the Australian business had posted a low single-digit decrease in internal sales. ''The

Australian market continues to be difficult, as both the cereal and snacks categories posted declines,'' he said.

Last week the incoming chief executive of McDonald's, the biggest restaurant chain in the world, singled out Australia in his quarterly earnings update, saying the country was experiencing ''ongoing tightening''.

During last week's quarterly earnings update for Illinois Tool Works, an executive vice-president, John Brooklier, explained to analysts and investors the state of the two-speed economy and fears the faster speed, mining and resources, was also showing signs of a slowdown.

''And if you really look at what's going on in Australia, the economy is slowing,'' Mr Brooklier said.

''Some of the mineral-related exporting going on to China slowed a little bit as China slowed a little bit.

''So I would say the service side of the economy in eastern Australia is certainly a lot slower, as is the western side, where it's really more natural resources. That has slowed a bit, too.''

In November Denise Morrison, the chief executive and president of the $US10.2 billion New Jersey-based Campbell Soup group, told investors Australian shoppers were increasingly reflecting a ''recessionary mindset'' that was having an impact on grocery sales.

Albert Stroucken, the executive chairman of Owens-Illinois, one of the world's biggest suppliers of glass used for the beverage industries, late last year used the term ''recession'' to describe the mood of local shoppers.

Food group HJ Heinz has labelled Australia's retail sector as the ''worst market''.