Investors who were starting to think trade tensions between the U.S. and major trading partners would have only a limited impact on company earnings had a rude awakening Wednesday, when car giant General Motors Co. posted earnings that showed commodity costs up $300 million from a year ago.
The biggest U.S. car manufacturer GM, -6.61% slashed guidance for 2018 because of worries that commodity-price pressures would weigh on it for the rest of the year. GM said the costs of steel and aluminum were way above what it was expecting at the start of the year, pushed up by the tariffs on imports that the Trump administration announced in March.
GM sources most of the metals it uses domestically, but tariffs have pushed those prices higher, too. Steel imports have been subject to a 25% tariff since June 1, while aluminum imports are subject to a 10% duty.
“Our operating performance was impacted by significant headwinds from commodity costs and currency devaluations in South America,” Chief Financial Office Chuck Stevens said in the earnings release.
GM shares were down 7.3% in midday trading, dragging rival Ford Motor Co. F, -3.45% lower, as well. Ford shares were down 3.9% ahead of the scheduled release after the bell of Ford’s second-quarter earnings report.
Until Wednesday, big U.S. manufacturers and industrial companies had mostly played down the impact the current trade tensions are having on their businesses. United Technologies Corp. UTX, -0.60% , for example, said just Tuesday that the impact from the first round of tariffs “appears to be relatively subdued.”
Don’t miss the MarketWatch tariff tracker: Here are the new levies, imposed and threatened
Chief Executive Greg Hayes said the parent of airplane-engine maker Pratt & Whitney, the heating and cooling systems company Carrier and elevator manufacturer Otis, is expecting tariffs to shave roughly 5 cents a share off full-year earnings, which is already baked into guidance.
‘We’re obviously taking actions to reduce cost, to look for ways to source products [less expensively], but input-cost inflation is a real issue that I think is something new for us, and, again, tariffs don’t help.’ Akhil Johri, United TechnologiesOn the UTX earnings call, Chief Financial Officer Akhil Johri said he expected input costs to remain a recurring theme, noting that copper prices are also up more than 10% and labor costs were being pressured by a shortage of workers in the U.S. and the EU.
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“We’re obviously taking actions to reduce cost, to look for ways to source products [less expensively], but input-cost inflation is a real issue that I think is something new for us, and, again, tariffs don’t help,” he told analysts, according to a FactSet transcript.
For the iconic motorcycle company Harley-Davidson Inc. HOG, -2.55% , tariffs are expected to cost $45 million to $55 million this year. CFO John Olin said the U.S. tariffs will increase raw-material costs by about $15 million to $20 million, while the European Union’s retaliatory tariffs on U.S. exports will cost about $30 million to $35 million.
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As a result, the Milwaukee-based company lowered its 2018 operating margin guidance range for its motorcycle business to 9% to 10%, “given the expected impact of tariffs,” from a prior range of 9.5% to 10.5%.
Forecast-busting results far overshadowed that news, however, and the stock enjoyed its best day in nearly two years.
So far this earnings season, inflation and dollar strength have loomed larger as a headwind than trade. Many companies have highlighted the rising costs for a range of raw materials and other goods and have said those costs will eventually make their way to consumers.
Consumers goods company Kimberly-Clark Corp. KMB, -0.42% , for example, said its numbers were impacted by $200 million of higher input costs, driven by $125 million in pulp and $45 million in other raw materials. The maker of Scott tissues cut its full-year earnings guidance and said it would aggressively manage costs and seek ways to raise prices.
“When you have a commodity impact as large and as significant as it is right now, I think our customers understand that,” CFO Maria Henry told analysts on the call. “And we do have to recover and improve our net revenue realization. And so we are going to take the appropriate actions.”
Then there’s Whirlpool Corp. WHR, -4.41% , the appliance maker that was meant to directly benefit from tariffs the Trump administration placed on its Asian competitors’ products earlier this year. Instead, that company cut its guidance as costs — for raw materials including steel — are expected to rise about $350 million in 2018.
“In addition to raw-material inflation, we experienced a temporary but significant decline in U.S. industry demand, headwinds related to the U.S. tariffs as well as the Brazilian strike in Latin America,” said Chief Executive Marc Bitzer on the early Tuesday conference call, according to a FactSet transcript.
Read now: Trucker strikes and tariffs: Whirlpool lists the reasons for its earnings miss
Fitch Ratings said Wednesday an escalation of the current global trade tensions would knock about 0.4% off world growth in 2019, but not all countries would be affected equally. The U.S., Canada and Mexico would be hit hardest, and China would skate by.
“China would only be affected directly by U.S. protectionist measures in this scenario (the imposition of further tariffs currently being considered by the U.S. and retaliatory tariffs on U.S. goods by the EU, China, Canada and Mexico), whereas the U.S. would be imposing tariffs on a large proportion of its imports while being hit simultaneously by retaliatory measures from four countries or trading blocs,” the agency said in a new report.
The S&P 500 SPX, +0.25% was up 0.1% Wednesday, and has gained 5.6% in 2018, while the Dow Jones Industrial Average DJIA, -0.18% has gained 1.9%.
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