What we learned from this earnings season: Trade war is clouding outlook

The U.S.-China trade war is not only putting investors on edge, but it’s also making corporate executives scratch their heads when it comes to their expectations for the future.

As this earnings season starts wrapping up, a common theme emerged from hundreds of conference calls: Managers had difficulty providing concrete guidance for 2019 earnings due to the uncertainty around trade, according to Goldman Sachs’ chief U.S. equity strategist David Kostin.

“Several management teams assumed that the March 1 tariff rate increase would occur. However, some firms remained optimistic about the prospects for a deal in 2019. Additionally, firms are seeing the impact of increased uncertainty in customer decision making,” Kostin said in a note.

Trade is the top-of-mind issue for companies whose revenue from China would be directly impacted from elevated tariffs. Optimism toward a long-term resolution has increased in the past couple of days as the high-level trade talks between the two countries made progress. President Donald Trump also expressed willingness to postpone the March 1 deadline reportedly by 60 days. The stock market has risen on trade hopes, with the S&P 500 gaining 1.7 percent this week so far.

'Uncertainty is not good for anyone'

J.P. Morgan Chase missed profit expectations for the first time in 15 quarters.

In the earnings call, CFO Marianne Lake addressed the uncertainty around trade battles: “For sure sentiment is not immune to external factors. I would say capex is sluggish on fears around global growth. Government shutdown and trade are not particularly helpful. Uncertainty is not good for anyone.”

FedEx saw the trade war negatively impacting its business. Company managers said during the earnings call that “continued tariff and trade concerns and uncertainty in Asia are impacting our business there … We continue to work with our customers as they reevaluate their supply chains.”

Some companies were more pessimistic about the trade negotiations, factoring the full 25 percent tariff rate into their earnings impact.

‎Scientific instrument manufacturer Mettler Toledo expects a gross negative impact of tariffs of approximately $25 million on an annual basis. The company said it assumes a 25 percent tariff will be implemented in March.

General Motors on Feb.6 reported fourth-quarter earnings that crushed expectations. During the earnings call, the executive said the company has “tariffs factored into our outlook for the year. That’s embedded in our $1 billion number. We expect to see headwinds year over year from commodities and tariffs to the tune of $1 billion.”

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