How Trump tariffs affect Ford, GE, Harley Davidson earnings
Gene Marks
Updated
Hard evidence on how President Trump's tariffs, especially those on Chinese products, have actually affected U.S. manufacturers will come into focus this week as six major American corporations issue quarterly reports.
The companies report Tuesday and Wednesday, and results are expected to show a range of results in navigating the effects of the president's trade policies.
3M - earnings release expected Tuesday
Industrial-materials maker 3M has already revised its yearend outlook downward. It cited the U.S.-China trade situation, which have caused higher-than-expected costs, as well as a soft automotive market and expenses related to a divestiture of its communications market businesses. The company says it's prepared to make changes in where it sources its products as well as consider price increases if trade pressures continue.
Caterpillar - earnings release expected Tuesday
Caterpillar sells machinery to many industries, but one of its biggest revenue streams is equipment sold to farmers. The cutbacks in purchases of U.S. products announced by China are hitting the growers of soybean and pork goods particularly hard. And in the near term it will likely force many of them to hold off on equipment purchases. In addition, the company expects that Chinese tariffs will increase its own material costs by about $100-$200 million in the second half of this year and is planning to meet those challenge with price increases. Even in light of these concerns, Caterpillar has increased its full-year outlook after a strong first half of the year and because of planned price increases, as well as certain spending cuts. Some analysts are expecting the equipment maker's third-quarter earnings to "skyrocket" as much as 41 percent.
The motorcycle maker has recently stoked the president's ire after a very public announcement that it would be moving some of its U.S. production of motorcycles sold in Europe out of the country to three international hubs. The costs related to increased steel and aluminum pricing caused by the president's tariffs, as well as the costs of getting other facilities ramped up for the production move are estimated to be anywhere from $35 million to $45 million. Harley is also concerned that if current negotiations with the EU aren't concluded satisfactorily, more costs could be incurred on units sold there. Regardless, the company has had a good year so far, with earnings higher than the previous period last year and third-quarter earnings are expected to be up about 14 percent compared to the same quarter last year.
Ford Motor -- earnings release expected Wednesday
Although they were not in effect earlier this year, the country's No. 2 automaker still blamed the anticipation of future tariffs as a significant factor behind $480 million additional commodity costs that was paid during the first quarter. Ford, which is significantly exposed to trade uncertainties with China, has had to halt its plans to sell the Chinese-made Focus Active in the U.S. and also recent announced that it would need to cut as much as 12 percent (approximately 24,000) of its employees worldwide. All in all, CEO Jim Hackett has said that tariffs are costing around $1 billion. The company's stock has fallen about 30 percent as of last week and now stands at an eight-year low. Many are expecting Ford’s quarterly earnings to fall significantly, perhaps by as much as 23 percent.
Whirlpool - earnings release expected Wednesday
Steel and aluminum tariffs are already hitting this company hard. Like Ford, Whirlpool executives have frustratingly found themselves on the wrong end of price increases just because of the potential impact that higher tariffs will have on commodity prices. As a result, the company expects to spend an additional $350 million on materials within the next year -- which is about the same amount as its entire 2017 annual profits. That said, the company says it has continued to succeed in maintaining margins in the third quarter and benefit from increasing consumer demand, factors that, according to most analysts, should increase earnings by as much as 7 percent.
General Electric - earnings release expected Tuesday 10/30/18
GE has been having a terrible year, tariffs notwithstanding. There was an embarrassing de-listing from the Dow Jones Industrial Average – after a 111-year run -- due to its declining market capitalization. The company’s CEO was removed a few weeks ago after only 18 months in office due to the board’s frustration at the slow pace of change. A $23 billion charge was also incurred relating to the write-off of its power business, and more restructurings are planned. To add salt to its wounds, GE will also be hit hard by Chinese tariffs, which could increase its costs by $300-$400 million overall. After the company announced that it will likely “fall short of previously indicated guidance for free cash flow and earnings per share for 2018,” most analysts are expecting trade pressures, as well as the other factors mentioned above, to result in as much as a 28 percent earnings decline when the company announces its most recent quarter's earnings.
My takeaway
The Trump tariffs are having their effect on earnings, however some companies – like Whirlpool, Caterpillar and even Harley Davidson – seem to be weathering the storm so far. The ones above who aren’t faring so well in this strong economy can’t necessarily blame the president’s trade policies for all their woes.
