Trump tariffs cause headaches for S&P 500 manufacturers

By Lewis Krauskopf and Noel Randewich

NEW YORK (Reuters) - U.S. President Donald Trump's tariffs on steel and aluminium from China are leading to higher costs for major U.S. manufacturers and causing concerns at other companies, according to executives who spoke to investors in recent days.

The topic has arisen on a fifth of conference calls for S&P 500 companies reporting quarterly results so far this month, as of Wednesday, according to a Reuters analysis of transcripts.

Executives at Harley-Davidson Inc , Ford Motor Co and Whirlpool Corp were among those warning investors about higher materials costs stemming from the U.S. tariffs on steel and aluminium.

 

Goldman Sachs and Fifth Third Bancorp said their banking clients were also concerned about protectionism and trade tensions. Corporate executives and investors are worried the row over tariffs, particularly with China, will escalate into a full-blown trade war.

The 2018 first quarter marked the first reporting period for companies since Trump in March imposed the 25 percent duty on imports of steel and 10 percent on aluminium.

Not all companies that discussed tariffs on calls said they expected to be hurt by them. Some said they hedged against volatile metals prices or that such costs were a small part of their overall businesses.

Harley-Davidson Chief Financial Officer John Olin warned that he expects extra costs stemming from the tariffs "on top of already rising raw materials that we expected at the start of the year."

"That's going to provide quite a headwind for the company over the next several quarters," Olin said on the motorcycle maker's conference call with analysts.

Whirlpool appeared to be a beneficiary of Trump's initial wave of tariffs, which included steep tariffs on imported washing machines.

But the appliance maker's chief executive, Marc Bitzer, told analysts this week the company was raising its raw material inflation guidance for the year by about $50 million to as much as $300 million, "primarily due to previously announced U.S. tariffs on steel and aluminium."

"Over the last few months, raw material costs have risen substantially," Bitzer said.

NEGOTIATED RESOLUTION?

Affirming the United States' top-notch credit rating on Wednesday, Moody's said it believes a negotiated resolution between Washington and Beijing is more likely than a destructive tariff tit for tat.

Beijing has responded to Trump's steel and aluminium tariffs with levies on U.S. aluminium as well as agricultural products such as fruit and nuts. Both sides are threatening more tariffs on tens of billions of dollars in goods, with Washington targeting Chinese televisions and machinery components while Beijing is eyeing U.S. soybeans, aircraft and cars.

Ford CFO Robert Shanks pointed to an increase in commodity costs which was "largely metals driven, in part, by the market's reaction to potential increases in U.S. tariffs."

Manufacturers' quarterly reports echoed a survey this month from the Institute for Supply Management, which showed a surge in the cost of raw materials and worries about the impact of steel and aluminium import tariffs.

On its quarterly conference call on Tuesday, Caterpillar said steel costs for the equipment industry were up about 15 percent in the March quarter. The heavy equipment maker's shares tumbled 6.2 percent on concerns that rising materials costs could squeeze profit margins.

Some companies said they planned to manage any cost increases for materials by controlling expenses through their supply chains or by raising prices for their products.

Homebuilder PulteGroup Inc pointed to inflation pressure on construction materials it depends on.

"You hear about tariff-related increases on steel and aluminium. So having said that, there is inflationary pressure on commodities," said Chief Financial Officer Robert O'Shaughnessy. "The good news is that we've seen a market that's allowed us to price to cover most of that."

Boeing Co CEO Dennis Muilenburg said the company had yet to see a significant impact on costs from the tariffs, but was "keeping a very close eye" on the broad trade environment.

"This is daily actions and daily vigilance on this topic," Muilenburg said.

(Additional reporting by Nick Carey in Detroit and Arunima Banerjee in Bangalore, editing by Alden Bentley and Susan Thomas)