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Here are the US conglomerates that'll be hit hardest by Trump escalating the trade war with China
Here are the US conglomerates that'll be hit hardest by Trump escalating the trade war with China
Arjun ReddyMay 7, 2019, 21:10 IST
President Donald Trump pumps his fist as he departs after the presentation of the Commander-in-Chief's Trophy to the U.S. Military Academy at West Point football team, in the Rose Garden of the White House, Monday, May 6, 2019, in Washington. (AP Photo/Alex Brandon)Associated Press
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President Donald Trump's tariffs have already had a significant affect on companies operating across several industries.
These multi-industry companies will suffer further declines in profitability should the trade war escalate, according to a report from RBC.
The companies that operate across multiple industries are likely to suffer from an escalating trade war.
President Donald Trump on Sunday threatened to raise the tariffs on $200 billion worth of Chinese goods from 10% to 25%, and slap a fresh 25% tariff on another $325 billion worth of Chinese goods. The new tariffs are set to go in place on Friday.
In response, China has decided to continue trade talks scheduled for this week in Washington, after previously threatening to cancel them. Stock-market volatility has increased markedly on the news, with the S&P 500 falling sharply at Monday's open before recovering throughout the day. On Tuesday, the S&P 500 was down more than 1.5% as trade worries persisted.
Multi-industry companies are particularly at risk to new tariffs as many have significant sales exposure to China, according to RBC analyst Deane Dray. These include US conglomerates such as 3M and Honeywell, as well as several other smaller companies.
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"We emphasize that most Multi-Industry companies had already conservatively included the List 3 tariff hike in 2019 guidance frameworks," Dray wrote. "We also have no visibility on the goods that would fall under the newly-revealed $325 billion bucket,"
She added: "That said, the bottom line is that the deterioration in US-China negotiations threatens to prolong the pain of the global trade war and exacerbate the slowing economic growth across both countries."
Markets Insider has highlighted companies from RBC's report below, ranked by sales exposure:
2018 expected gross tariff headwind as a % of cost of goods sold: 0.3%
2019 share price performance: positive 13%
Market cap: $41 billion
RBC commentary:
"Sizes $125 mil of tariff impact in FY2019, up significantly from $25 mil in FY2018. EMR's fiscal year starts in Sept, which may elevate its FY2019 tariff impact vs. peers. Aims to pass through price increases to keep price/cost net neutral."
3M
Ticker: MMM
2018 China sales exposure: 10%
2018 expected gross tariff headwind as a % of cost of goods sold: 0.1%
2019 share price performance: negative 5%
Market cap: $104 billion
RBC commentary:
"Expects $100 mil of cost headwinds (or 10-15c of EPS) from tariffs in 2019. However, pricing gains should more than offset cost inflation to keep the price/cost spread positive."
Gates Industrial
Ticker: GTES
2018 China sales exposure: 9%
2018 expected gross tariff headwind as a % of cost of goods sold: 0.6%
2019 share price performance: positive 18%
Market cap: $5 billion
RBC commentary:
"Sized total tariff impact at $10-$15 mil in 2018. Expects to offset input pressures with pricing and/or productivity given its manufacturing footprint, +60% replacement market focus, and brand strength."
Idex Corporation
Ticker: IEX
2018 China sales exposure: 9%
2018 expected gross tariff headwind as a % of cost of goods sold: 0.6%
2019 share price performance: positive 22%
Market cap: $12 billion
RBC commentary:
"One of the sector's 'Price-Makers', with positive price-cost YTD; focuses on maintaining its 20-40 bps of pricing net of inflation spread; the company's pricing actions include a combination of actual price increases and surcharges."
Danaher Corporation
Ticker: DHR
2018 China sales exposure: 9%
2018 expected gross tariff headwind as a % of cost of goods sold: 0.3%
2019 share price performance: positive 28%
Market cap: $94 billion
RBC commentary:
"Tariffs expected to be a $12-$13 mil per quarter headwind. Four-pronged countermeasures: (1) price increases; (2) changes to supply chain; (3) modifying manufacturing locations; and (4) seeking exemptions for certain products."
AMETEK Corporation
Ticker: AME
2018 China sales exposure: 9%
2018 expected gross tariff headwind as a % of cost of goods sold: 0.2%
2019 share price performance: positive 27%
Market cap: $20 billion
RBC commentary:
"Sizes $125 mil of tariff impact in FY2019, up significantly from $25 mil in FY2018. EMR's fiscal year starts in Sept, which may elevate its FY2019 tariff impact vs. peers. Aims to pass through price increases to keep price/cost net neutral."
Fortive Corp.
Ticker: FTV
2018 China sales exposure: 8%
2018 expected gross tariff headwind as a % of cost of goods sold: 1.6%
2019 share price performance: positive 23%
Market cap: $28 billion
RBC commentary:
"Section 232 should have a small impact, but Section 301's focus on electronics will impact Fluke and Tektronix. Fortive's strong pricing power and global supply chain/manufacturing footprint helps offset any inflationary pressures."
Graco Inc.
Ticker: GGG
2018 China sales exposure: 8%
2018 expected gross tariff headwind as a % of cost of goods sold: 1.0%
2019 share price performance: positive 22%
Market cap: $8 billion
RBC commentary:
"Mixed exposure to tariffs; US-centric manufacturing model suggests more products need to cross borders, but Graco's robust gross margins and pricing power help offset tariff pressures; managed situation in 2018 and expects to pass ~2.0ppts in pricing in 2019."
Ingersoll-Rand
Ticker: IR
2018 China sales exposure: 7%
2018 expected gross tariff headwind as a % of cost of goods sold: 0.6%
2019 share price performance: positive 34%
Market cap: $30 billion
RBC commentary:
"Expects gross tariff headwinds to be ~$70/~$100 mil in 2018/2019; saw some pause in China Industrial frontlog activity in 3Q18; baking in a jump to 25% tariffs, though does not expect to capture any spread as pricing should adjust."
Eaton Corp.
Ticker: ETN
2018 China sales exposure: 7%
2018 expected gross tariff headwind as a % of cost of goods sold: 0.4%
2019 share price performance: positive 17%
Market cap: $34 billion
RBC commentary:
"Sizes $65 mil tariff impact for 2018 and expects to offset it with price and cost-out with no negative EPS impact; expects an incremental $100 mil headwind in 2019; more concentrated in Electrical."
Honeywell Inc.
Ticker: HON
2018 China sales exposure: 7%
2018 expected gross tariff headwind as a % of cost of goods sold: <0.1%
2019 share price performance: positive 30%
Market cap: $125 billion
RBC commentary:
"Confident that 2018 tariff impacts should be 'minor'; coping with direct and indirect pressures through pricing increases (~2/3) and alternative sourcing (~1/3); 2019 headwinds could be 'hundreds of millions.'"
Johnson Controls
Ticker: JCI
2018 China sales exposure: 6%
2018 expected gross tariff headwind as a % of cost of goods sold: 0.3%
2019 share price performance: positive 34%
Market cap: $35 billion
RBC commentary:
"Assumes full impact of Section 232 and 301 tariffs, which will present a $130-$140 mil cost headwind, split roughly evenly between FY2018 and FY2019. Expects to maintain positive price/cost spread in FY2019."
Dover Corp.
Ticker: DOV
2018 China sales exposure: 6%
2018 expected gross tariff headwind as a % of cost of goods sold: 0.2%
2019 share price performance: positive 37%
Market cap: $14 billion
RBC commentary:
Sized a $55 mil commodity headwind for 2018 (-6% EPS headwind) including a minor contribution from tariffs; evaluating potential alternative sourcing.
