- 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.
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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.
"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:
Emerson Electric Co.
2018 China sales exposure: 10%
2018 expected gross tariff headwind as a % of cost of goods sold: 0.3%
2019 share price performance: positive 13%
Market cap: $41 billion
"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."
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
"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."
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
"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."
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