By Lewis Krauskopf
NEW YORK (Reuters) - Turmoil in Ukraine and a series of Western sanctions on Russia are starting to hurt some U.S. corporations doing business in the region, with the latest round of U.S. penalties threatening to complicate matters further.
The companies have expressed concern about the weak Russian economy, the ruble's decline and the potential for the crisis to worsen. There are also worries about a possible backlash in Russia against Western products.
U.S. Treasury Secretary Jack Lew said on Tuesday that international sanctions on Russia were putting pressure on Russia's economy, and more actions could be taken if Moscow did not step back from the Ukraine crisis.
Companies began feeling the pain in the first quarter, "but it seems to be worse and more uncertain and spreading in the second quarter, which will obviously impact future earnings reports," said Clement Miller, investment strategist at Wilmington Trust Investment Advisors.
"So if you assume the ruble is going to stay at this depressed level the rest of the year, that is something we are going to be battling with for the rest of the year in our European margins," McDonald's Chief Financial Officer Pete Bensen said on the company's first-quarter conference call.
McDonald's, which operates more than 400 restaurants in Russia, was the first international fast-food chain to tap the Russian market when it opened in Moscow's Pushkin Square before the collapse of the Soviet Union. McDonald's sees Russia as one of its top seven major markets outside the United States and Canada, according to its 2013 annual report.
Shanks, who also cited lower sales volume in Russia due to the country's overall weakened economy, said the geopolitical issues in Russia "so far haven't had much of an effect. But we'll have to wait and see what comes down the road."
Ford Sollers, a joint venture between Ford and Russian carmaker Sollers
FALLOUT FROM WEAK ROUBLE
The worst East-West crisis since the Cold War ended in 1991 is damaging Russia's faltering economy. Surveys have suggested business confidence in the country is now the lowest since 2008, capital outflows have surged and the ruble is down about 8 percent against the dollar this year.
The weakening ruble has made it more costly for foreign companies with Russian operations to use the currency to import necessary goods or commodities.
Even companies that have yet to see significant harm to sales or profits from the tensions warn that the path ahead is uncertain, especially if escalating tensions lead to broader instability in eastern Europe and beyond.
"We are hoping for a peaceful resolution, but business confidence around the world could dampen, and trade and world GDP could slow should the situation deteriorate," Caterpillar Inc
Caterpillar, which celebrated 100 years in Russia in 2013, says Russia and the Commonwealth of Independent States are "among the most dynamic developing territories for Caterpillar."
The United States on Monday announced a new round of sanctions aimed at business leaders and companies close to Russian President Vladimir Putin, while the European Union followed up on Tuesday by naming 15 Russians and Ukrainians to its blacklist, moving to freeze assets and deny visas.
In response, Putin warned that he could reconsider the participation of Western companies in Russia's economy, including energy projects, if sanctions continued.
While it was not clear what, if any, retaliatory steps the Russian leader might take, some experts warned of a backlash from Russian consumers. They speculated the sanctions could potentially leading to shunning of U.S. brands.
"I suspect there will be an adverse impact on U.S. companies operating in the market," said Constantin Gurdgiev, an adjunct professor of finance at Trinity College Dublin. "Unfortunately, the bitter aftertaste of the sanctions is going to stay in popular minds for a long time."
The deputy speaker of the Russian parliament, Vladimir Zhirinovsky, known for his anti-Western rhetoric, has already demanded that McDonald's pull out of Russia.
Credit card company Visa Inc
Chemicals maker DuPont
"Given our uncertain political situation there and the tightened credit markets, we are seeing seed-buying decisions being reduced or deferred," DuPont Executive Vice President James Borel said on a conference call with analysts.
To be sure, some U.S. companies with a substantial presence in Russia have avoided any serious problems so far.
Some companies are even seeing a silver lining in the crisis. Raytheon Co
(Additional reporting by Ben Klayman in Detroit, James B. Kelleher in Chicago, Aman Shah in Bangalore, Phil Wahba and Ernest Scheyder in New York and Andrea Shalal in Washington, editing by Ross Colvin)