Trump tariffs: America’s biggest companies have other worries

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fan dressed as Captain America.

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• Third-quarter earnings season is here and America’s biggest
  companies are most concerned about FX headwinds impacting their
  results.
• More than 60% of companies that have reported so far
  mentioned FX/currency as the biggest negative impact to results
  either now or in the future.
• One-third of companies that have already reported cited
  President Donald Trump’s tariffs as their biggest concern. 

Third-quarter earnings season kicked off last week and while
President Donald Trump’s tariffs have been grabbing the headlines
recently for their potential impact on corporate earnings,
America’s biggest companies have some even bigger concerns. 

FactSet analyst John Butters combed through the earnings call
transcripts of the 24 companies that reported through October 11
and found that mentions of FX/currency (15 times) outpaced
tariffs (6) by more than two-to-one. In fact, Trump’s tariffs
weren’t even in the top three of corporate worries as raw
material and other inflation (8) and wage & labor costs (7)
were bigger concerns. 

“Foreign exchange has been cited by more than 60% of the
companies that have reported to date (15) as a factor that either
had a negative impact on earnings or revenues in Q3 or is
expected to have a negative impact on earnings and revenues in
future quarters,” Butters wrote in a blog
post on Friday.

“The number of companies citing a negative impact from FX in Q3
is 25% higher than the number of companies that cited a negative
impact from this factor in Q2 (12) at about the same point in
time.”

The US dollar has rallied 3.28% this year versus a basket of its
peers, and holds about 8% below its strongest level since 2002. A
stronger dollar is a headwind for the largest S&P 500
companies that generate a chunk of their sales in weaker foreign
currencies. That’s because they see their earnings shrink when
they are translated back to the dollar.

The strong dollar will be in focus on Tuesday as Netflix is set
to report its quarterly results after the closing bell. The
streaming giant’s international
revenue surpassed its US revenue for the first time in the
second quarter, and its possible the impact pops up in Tuesday’s
report. Earlier in October, a team of Goldman Sachs analysts led
by Heath Terry said 2018-2020 revenue and EBITDA could be
impacted by up to 20 basis points as a result.    

As for Trump’s tariffs, Butters says they are something to keep
an eye on as a growing number of companies are mentioning them on
their earnings calls. 

“It is interesting to note that the term “tariff” has been
mentioned during the earnings calls of 12 S&P 500 companies
to date, with six of these 12 companies citing a negative impact
linked to tariffs,” Butters noted.

“This number is up from just one company citing a negative impact
from tariffs through the same point in time in Q2.”