During each corporate earnings season, it is not unusual for companies to comment on subjects that had an impact on their earnings and revenues for a given quarter, or may have an impact on earnings and revenues for future quarters. Through Wednesday (July 25), approximately 35% of the companies in the index (173 companies) had reported earnings results for the second quarter. Given the recent implementation of tariffs by the Trump administration, have companies in the S&P 500 commented on “tariffs” during their earnings conference calls for the second quarter?
To answer this question, FactSet searched for the term “tariff” in the conference call transcripts of the 159 S&P 500 companies that had conducted second quarter earnings conference calls through July 25.
Of these 159 companies, 70 (or 44%) cited the term “tariff” during the call. This number is above the numbers for the previous four quarters (through the same point in time in the earnings season). Clearly, tariffs have become a more frequent topic of discussion on the earnings calls of S&P 500 companies in recent quarters. At the sector level, the Industrials sector has witnessed the highest number of companies (24) discussing “tariffs” on earnings calls of all 11 sectors.
Overall, 43 of the 70 companies (61%) that have discussed tariffs on their earnings calls saw little to no impact on their earnings in the second quarter or anticipated little to no impact in future quarters from tariffs. On the other hand, 19 companies discussed at least a “modest” negative impact (or potential negative impact in future quarters) from tariffs on their businesses. In addition, 17 companies also discussed the uncertainty of the implementation or impact of future tariffs. The number of companies does not add to 70, as some companies made comments in multiple categories (e.g. no impact in Q2 but uncertainty in future), while other companies made comments about tariffs that did not fit any of these categories.
Comments from the earnings calls of 24 companies in the Industrials sector fall into three categories:
Industrials: Minimal to No Impact from Tariffs
“So we have not seen any changes in the U.S. customer behavior directly related to these new tariffs. Now this is not really surprising especially since the commodities inflection make up only a very, very small portion of our U.S.-China revenues.” -FedEx (Jun. 19)
“Basically, what I'm saying is we're confident in high single-digit growth long term, diversified set of drivers. We believe we'll continue to drive those numbers regardless of the global trade potential for tariffs, some of the raw material tariffs that might come about. We feel our services are well diversified and would play through that.” -IHS Markit (Jun. 26)
“As it relates to 301, I think there's a couple of threads here. One is, the first $50 billion that has been talked about. There's not a huge impact on us from that. Now that we had a chance to kind of see how our products are being affected, I will probably stick with about 10 million of COGS perhaps being affected by that, although it's in places we hadn't necessarily expected sort of indirect shipments on things like ball bearings and welding consumables and things like that. But it's a pretty small number, I don't think particularly meaningful. And so if it stops there, I'm not overly concerned about the direct impact to tariffs.” -Fastenal (Jul. 11)
Industrials: Negative Impact from Tariffs
“In the industrial platform, performance was more mixed as they are more subjected to material costs and tariff issues.” -Dover (Jul. 19)
“As we look ahead at the second half of 2018, our Ag products group will continue to face challenges in the export grain market from high global supplies, foreign tariffs, and a low protein wheat crop.” -Union Pacific (Jul. 19)
“Now, shifting to tariffs. We currently estimate the impact of tariffs to be a 2018 headwind of approximately $35 million. This reflects the impact of Section 232 tariffs on steel and aluminum, as well as the initial $34 billion of Section 301 tariffs on componentry and some finished goods.” -Stanley Black & Decker (Jul. 20)
Industrials: Tariff Uncertainty
“I think the question you're really getting at is what happens with the other $200 billion, should they go into effect? And honestly at this point, we're not sure. I mean it's hard to sort of speculate on that.” -Fastenal (Jul. 11)
“From an indirect standpoint – and when I say indirect, I mean from our vendors – it remains to be seen how they will be impacted and how that might in turn impact us. We're certainly keeping our eyes on that. But we need a little bit more time for that to play out. From a customer perspective, too early to see much of an impact.” -Cintas (Jul. 19)
“Now, turning to the right side of the chart to address the additional $200 billion in tariffs under Section 301 that were announced on July 10. We have not included the impact of these tariffs in our guidance due to the uncertainty around implementation timing and the product categories that will ultimately be included.” -Stanley Black & Decker (Jul. 20)
John’s weekly research report, Earnings Insight provides analysis and commentary on trends in corporate earnings data for the S&P 500, including revisions to estimates, year-over-year growth, performance relative to expectations, and valuations. He is a widely used source for the media and has appeared on CNBC, Fox Business News, and the Business News Network. In addition, he has been cited by numerous print and online publications such as The Wall Street Journal, Financial Times, The New York Times, MarketWatch, and Yahoo! Finance.