Tariffs weigh on corporate results

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08/16/2019 | 04:23 pm
Looking back at the latest earnings season, now coming to an end, it is obvious that tariffs are on most companies’ minds. A study from data provider FactSet shows there was a 40% increase in S&P 500 companies citing tariffs on earnings calls between the first and the second quarter of 2019.
The scale of the impact of the trade dispute with China on the American economy is hard to assess. Donald Trump's new threats of 10% customs duties on the remaining $300 billion of Chinese imports have made markets and busiesses anxious, although this threat has now been postponed to December.

China has already Implemented retaliatory measures against its agricultural imports of American origin and also allowed its currency to depreciate in order to circumvent tariffs.
This led investment bank Global Sachs to revise all its forecasts downwards for future US economic data. The trade protectionism policy adopted by current US President Donald Trump is seen as the main risk factor for a recession. The bank now predicts a 0.6% decline in annual GDP, while the previous forecast predicted only a decrease of 0.2%. This shows that the escalation of trade tensions will probably have a greater impact than expected.

This is evidenced by the fact that tariffs have been mentioned by most companies in the S&P 500 during their earnings conference calls for the second quarter, according to FactSet.

The data provider searched for the term “tariff” in the conference call transcripts of the 438 S&P 500 companies that had conducted earnings conference calls between June 15 and August 8. Of these 438 companies, 124 (or 28%) cited the term “tariff” during the call. At the sector level, the Industrials led all sectors with 35 companies citing” the term “tariff” on earnings calls.

“The number of S&P 500 companies discussing tariffs on Q2 2019 earnings calls during this time is well above the number through the same point in time in the first quarter. From March 15 through May 8, 88 S&P 500 companies (or 21%) had cited the term “tariff” during their Q1 2019 earnings calls. Thus, there has been a 41% increase (124 vs. 88) in the number of S&P 500 companies citing “tariffs” in Q2 relative to Q1,” FactSet’s study states.

Looking at sectors, 10 of the 11 recorded an increase in the number of S&P 500 companies citing the term “tariff” on earnings calls in Q2 2019 relative to Q1 2019. The largest increase is in the Technology sector.

Source: FactSet
Romain Fournier
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