Tariffs have been top-of-mind for corporate executives in the early days of this quarter's earnings season as U.S. President Donald Trump threatens to hit allies Mexico and Canada with levies on imported goods.
Those tariffs are expected to now begin on March 1, with an announcement on Saturday, but it is possible Trump will back off those threats or target only specific industries.
How companies navigate the issue is a key topic on conference calls and at investor events this quarter. Nearly 200 companies that are part of the S&P 1500 - large, mid- and small-cap stocks - have mentioned either "nearshoring," "tariffs," or "supply chain" through the month of January.
So far, many CEOs' remarks are similar to those of Textron (TXT.N) CEO Scott Donnelly, who said on Jan. 22 that "we're just going to kind of hang in there and see how it plays out."
Here are some of the aspects trade executives are discussing:
PRODUCTION LOGISTICS
Several companies over recent weeks have discussed the challenges of moving production around. Some companies manufacture in the United States as well as Mexico or Canada, and may be hit by tariffs if they import components that cannot be relocated to the U.S.
"We have available capacity in our domestic operations to shift production as needed to minimize those tariff impacts if they were to occur," said Brent Yeagy, CEO of transportation logistics company Wabash National (WNC.N).
Power sports vehicle manufacturer Polaris (PII.N) spoke about this on its earnings call, noting how in 2017 it moved swiftly to get out of China, and now faces potential tariffs due to production facilities in Mexico. In addition, it is also dealing with higher labor costs for its U.S. operations.
"Relative to the rest of the power sports industry up and to this point, we have been incredibly disadvantaged," Michael Speetzen, CEO of Polaris, said on a conference call to discuss earnings on Jan. 28. "We're the only U.S. manufacturer yet we're the only ones paying tariffs."
MOVING SHIPMENTS AROUND
Some companies have suggested they will consider shifting around where they send their shipments. Large global firms with operations in numerous companies may be able to adjust shipments from one spot to another.
ACCELERATED SALES
Numerous companies already said they were seeing customers boost orders ahead of tariffs, both in the last quarter and current quarter. Automakers like General Motors (GM.N) accelerated deliveries to get ahead of tariffs.
Some companies are anticipating Trump may announce a gradual acceleration of tariffs - which could then spur pre-emptive purchases. "I do not see heightened pre-buy activity on products. I think most are taking the stance that if or when they occur, there'll be some notice period to do that," said Neil Schrimsher, CEO of Applied Industrial Technologies (AIT.N).
INFLATION AND PRICING
Numerous executives have said that tariffs would inevitably be passed on to consumers. Eric Cremers, CEO of forest products company PotlatchDeltic (PCH.O), commented on the company's earnings call that he was aware of a Canadian lumber producer that would try to pass along 100% of tariff costs to its customers. "Now will they be able to get all that 100% of whatever the duty is or not? Who knows what will ultimately wind up happening, but their plan is to pass that along to consumers."
