Last Thursday (November 2), Republicans in the House of Representatives released their proposed legislation for tax reform. Yesterday, Republicans in the Senate released their proposed legislation for tax reform. Many of the changes in these proposals could have a significant impact on future earnings for S&P 500 companies.
During each corporate earnings season, it is not unusual for companies to comment on subjects that had an impact on their earnings for a given quarter, or may have an impact on earnings for future quarters. Through yesterday, 457 S&P 500 companies (or 91% of the index) had reported earnings results for Q3 2017. Given the renewed focus on tax reform by President Trump and the release of the House and Senate proposals, have companies in the S&P 500 commented on “tax reform” during their earnings conference calls for the third quarter?
Tax Reform Mentions in Conference Calls
To answer this question, FactSet searched for the term “tax reform” in the conference call transcripts of the 445 S&P 500 companies that had conducted third quarter earnings conference calls through November 9.
Of these 445 companies, 93 cited the term “tax reform” during the call. This number is above the number for Q2 2017 (42) and the number for Q1 2017 (79) through the same point in time in the earnings season. However, it does trail the number for Q4 2016 (125).
Since the day the House tax reform proposal was released (November 2), 34 S&P 500 companies have discussed the term “tax reform” during their earnings calls for Q3. What are S&P 500 companies saying about tax reform since the release of the House proposal?
Broadly speaking, 14 of these 34 S&P 500 companies have expressed positive sentiments about tax reform in general. However, 17 of these 34 S&P 500 companies have also expressed uncertainty about the final tax legislation or the need to study the tax proposals in more details during this period. Many of the same companies expressed both positive sentiments and uncertainty about the final legislation during their earnings calls. Five of these 34 S&P 500 companies stated they are not incorporating tax reform into their guidance or decision-making process for the upcoming year.
Tax Reform Comments: Positive Sentiments
“To start, Perrigo has always talked about we believe that tax reform is necessary. Modernizing what you could argue is an outdated United States tax code for competitiveness for the U.S. in jobs and investment is critical for the U.S. economy over the longer term…So again, we applaud the U.S. government for being serious about tax reform.” –Perrigo (Nov. 9)
“I have participated in a number of events with a whole bunch of our corporate customers recently, and I think generally the view from our corporate customers, not surprisingly, is if tax reform gets done, it will be a boost to the economy, a boost to their fortunes, and a boost to GDP generally. And in that sense I think they would be a bit more optimistic about growth.” –Marriott International (Nov. 8)
“As far as what's been proposed, as far as kind of the federal changes, clearly, a big benefit to someone in Cboe's position where we pay at the top end of the bracket, it's primarily U.S. earnings. So we're paying that full 35%. There's positives and negatives in there. But largely, it's going to be much more positive to us, both on an effective tax rate basis and a cash basis for what we ultimately pay in taxes.” –Cboe Global Markets (Nov. 7)
“But I think the – yeah, look, we're a company that obviously has a large percentage of our profits in the United States and so, certainly, just based on that fact it certainly seems like a positive opportunity for us…But, certainly, again, overall, from our company's perspective, again, were that to happen, I think there's certainly some positive opportunities for us.” –Sysco (Nov. 6)
Tax Reform Comments: Uncertainty or Need to Analyze In-Depth
“But I would also say that until we really sit back and study all the provisions of it, we really aren't in a position today to comment on what the ultimate effect will be, because I'm sure there will be tax planning opportunities that we'll have in front of us as well.” –Johnson Controls (Nov. 9)
“I think our – a general answer on that is that we haven't fully evaluated it, and the proposal is just a proposal. A lot of other proposals that have come out on tax rates, healthcare and other, not much has happened in Washington and there's really not much reason to burn calories on it. I don't really know if there is support in Senate where a number of Senators against anything that they want to do. So I think it's kind of too early.” –Microchip Technology (Nov. 6)
“We also continue to carefully assess the potential impacts from U.S. corporate tax reform and are in the process of studying yesterday's bill.” –AIG (Nov. 3)
“Before I wrap up, I would like to briefly address the tax reform bill released in Congress yesterday. It's too early for us to know the potential impacts of tax reform on our company and customers, especially given that changes are expected in the coming weeks.” –Alliant Energy (Nov. 3)
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.