MW On earnings calls, executives are trying to figure out Trump's tariffs

By Bill Peters

Earnings Watch: McDonald's and Coinbase report this week amid fast-food struggles and promises of crypto deregulation

The last time executives were talking this much about tariffs on earnings calls was, well, the last time President Donald Trump was in office. And once more, companies importing goods from China and elsewhere are trying to gauge the potential impact on their profits and sales.

From Dec. 15 through Thursday, 146 S&P 500 SPX companies cited the term "tariff" or "tariffs" on those calls with Wall Street analysts, according to a FactSet analysis published Friday. That's the highest number since the second quarter of 2019, and represents around half of the 291 companies on the index that held earnings calls over that time.

Trump wasn't in office for part of that time, and he announced specific plans for additional tariffs on Canada, Mexico and China on Feb. 1. But in conversations on earnings calls both before and after that announcement, executives have tried to stay cautious on setting investors' expectations.

"Many of these companies have discussed uncertainty in association with their comments on tariffs," John Butters, senior earnings analyst at FactSet, wrote in the analysis. "Due to this uncertainty, a number of companies stated they were unable to quantify the impact of tariffs at the time of their earnings call."

For instance, management at auto-parts retailer O'Reilly Automotive Inc. $(ORLY)$, which was among the companies cited in the FactSet report, said Thursday that they hadn't yet factored tariffs into assumptions on future sales.

"For now, I will just highlight that our sales assumptions exclude any changes in tariffs, as it remains too early to project the impact to our business," O'Reilly Chief Executive Brad Beckham said.

Trump said he was placing an additional 10% tariff on imports from China, while extra tariffs of 25% on imports from Canada and Mexico have been pushed back until early next month after negotiations with the two countries. Trump has also said he would hit the European Union with tariffs.

The White House has said it hopes to use the tariffs on Canada, Mexico and China to get those nations to stop illegal immigration and halt the movement of fentanyl and other drugs into the U.S. More broadly, the Trump camp has framed tariffs as a tool to work out more favorable trade deals and restore jobs in the U.S. Trump has said tariffs could bring "some pain" to American businesses and consumers, but that it would be worth it to strengthen the economy.

Economists have been concerned that the tariffs could spark a trade war and raise prices, as businesses charge consumers more to cover the extra costs of higher levies on imports. How much more shoppers, already worn out from inflation, might ultimately pay depends on how much of the impact a company decides to absorb itself, and how long the tariffs last.

Elsewhere, Honeywell International Inc. $(HON)$ - which makes things like thermostats, air purifiers and mechanical equipment for jets - said last week that it was "working to determine the magnitude of the pending impact on our business from new tariffs, which are not currently included in our guidance."

Automaker Ford Motor Co. $(F)$, meanwhile, said its forecast hadn't factored in any policy changes from the Trump administration.

Jim Farley, Ford's chief executive, said that a few weeks of tariffs would be "manageable." But he said a more protracted tariff regime would raise prices for consumers and "have a huge impact on our industry, with billions of dollars of industry profits wiped out and adverse effect on U.S. jobs, as well as the entire value system in our industry."

Still, toy maker Mattel Inc. $(MAT)$ put up a profit outlook that accounted for the expected impact of the new tariffs. That forecast topped Wall Street's expectations, and Mattel shares rallied.

"Today, we source products from seven different countries, and in 2025, we expect China will represent less than 40% of global production for our toys, and that's compared to an industry average of about 80%," Mattel Chief Financial Officer Anthony DiSilvestro told Wall Street analysts last week.

"And with the U.S. representing about half of our global toy sales, our tariff exposure in the U.S. related to China should be about 20% of global production," the Mattel CFO added. Other companies in recent months have also discussed their efforts to rely less on China for production.

Even as job growth mellowed in January, there were still signs of a strong labor market. Cloud-computing growth at some of the Big Tech firms that drive the S&P 500's earnings overall may have disappointed investors, but fourth-quarter earnings growth so far was still strong.

That overall growth rate for the companies in the index - based on a combination of actual results so far and analyst estimates for companies still to report - stands at 16.4%, according to FactSet. If that holds, it would be the strongest growth since the fourth quarter of 2021.

This week in earnings

For the week ahead, 78 S&P 500 companies will report results, including three on the Dow Jones Industrial Average DJIA, according to FactSet.

Among them are sports-betting platform DraftKings Inc. (DKNG), which will report in the wake of the Super Bowl, and Starbucks Corp.'s $(SBUX)$ more casual coffee-chain rival Dutch Bros Inc. (BROS). Drugstore chain CVS Health Corp. $(CVS)$ will also report as it deals with inflation-weary consumers, competition from Amazon.com Inc. $(AMZN)$ and an uncertain regulatory environment.

DoorDash Inc. $(DASH)$, Lyft Inc. $(LYFT)$, Deere & Co. (DE), Palo Alto Networks Inc. (PANW), Airbnb Inc. $(ABNB)$, Roku Inc. (ROKU), Molson Coors Beverage Co. $(TAP)$, Reddit Inc. (RDDT) and Kraft Heinz Co. $(KHC)$ also report during the week.

The calls to put on your calendar

McDonald's and the fast-food wars: Fast-food chains are still deep in their effort to win over customers through value deals, after steady price increases in recent years turned many off. Last month, McDonald's Corp. $(MCD)$, which reports results on Monday, delivered the latest salvo in that battle: the McValue menu. That will mean yet another cheaper fast-food option for customers, and whatever offers rivals might introduce in response. But analysts said the launch also spoke to the fast-food industry's difficulties, as executives juggle shareholder demands for profit, higher ingredient costs and worker demands for higher pay. Then there are other issues for McDonald's, such as struggles among low-income consumers who have been eating at home more frequently.

Fellow fast-food burger chain Wendy's Co. $(WEN)$ reports results on Thursday.

The number to watch

Coinbase's revenue, volumes and outlook: The price of bitcoin (BTCUSD) and other cryptocurrencies surged in the days after President Trump's election in November, although not all of them have been able to hold their gains. When crypto exchange Coinbase Global Inc. $(COIN)$ reports its quarterly results on Thursday, executives should offer a deeper read on the craziness - and to what extent it can continue.

The company will issue those results as the Securities and Exchange Commission reportedly starts to peel back the apparatus for crypto regulation, as Trump has promised to make the U.S. the "crypto capital of the planet." However, crypto prices wobbled after Trump announced extra tariffs on China, Canada and Mexico, and the asset class thrives on investors' appetite for risk

Online brokerage Robinhood Markets Inc. (HOOD), which also allows users to trade crypto, reports during the week as well.

-Bill Peters

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February 09, 2025 10:00 ET (15:00 GMT)

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