Updates throughout after Feb. 1 tariffs
By Johann M Cherian and Pranav Kashyap
Feb 3 (Reuters) - U.S. President Donald Trump's tariffs on Canada, Mexico and China have the potential to impact corporate profits, as well as to dictate the path of inflation, economic growth and stock market performance, analysts said.
While Mexico-exposed names recouped some losses after Trump agreed to delay new tariffs on Mexico for one month, investors were still assessing the fallout of the sweeping tariffs.
COMPANIES AND PROFITS
- Goldman Sachs expects the announcements to reduce its S&P 500 earnings per share $(EPS)$ forecasts by about 2% to 3%. It said every 5 percentage point increase in U.S. tariff rates could potentially decrease the EPS by around 1% to 2%.
- Tariffs against Canada, Mexico and China could amount to a 2.8% drag on the S&P 500's .SPX profit, if fully enacted, with the materials and discretionary sector most at risk, Barclays analysts said, before the tariffs were imposed on Feb. 1.
- A small import price shock in a narrow tariff scenario is likely to result in a 50 basis points compression in S&P 500 gross margin, while broader tariffs could see margins shrink by 250 bps, Citigroup said, before the announcement.
- Profit margins of exporters could be hit, according to BlackRock, if inflation causes elevated interest rates and sets off a dollar rally to its 2022 peak.
AUTOMAKERS
- The U.S. auto sector could face an additional cost of up to $40 billion annually, which translates to an average increase of about 7% per car, according to Daniel Roeska, a senior analyst at Bernstein.
- Canada and Mexico account for nearly one-fifth of the value of U.S. vehicle consumption and production, Goldman Sachs said before the tariffs were announced.
- The surcharges imposed on Mexican imports could prove to be a problem for General Motors, while production could shift to the U.S., RBC analysts said in a note dated Jan. 28.
- Among European carmakers, the most exposed are Volkswagen VOWG_p.DE and Stellantis STLAM.MI, with a possible impact to around 8 billion euros ($8.25 billion) of Volkswagen's revenues and 16 billion euros of Stellantis revenue, Stifel said, after Saturday's announcement.
- However, the actual impact could be much lower due to measures taken by the companies, Stifel added.
STEELMAKERS
- European steelmakers with U.S. production supply chains integrated with Mexico, Canada and Europe will be directly impacted, J.P. Morgan said.
- Analysts flag ArcelorMittal MT.LU, Finnish peer Outokumpu OUT1V.HE as exposed to Mexican and Canadian steel, while Acerinox ACX.MC and SSAB SSABa.ST have high U.S.-based production.
- Canada accounts for 70% of U.S. aluminum imports, J.P. Morgan analysts said in a Feb. 3 note.
SPIRITS
- Beverages and spirits like tequila, mezcal, and beer make up a substantial portion of U.S. imports, totaling almost $12 billion in trade.
- Spirits groups Diageo DGE.L and Campari CPRI.MI will be hit hardest by tariffs on Mexico and Canada, said J.P. Morgan analysts after the Feb. 1 tariff announcement.
- AB Inbev ABI.BR and Heineken HEIO.AS have the largest EBIT exposure to the two markets, while Remy Cointreau RCOP.PA and Carlsberg CARLb.CO have the highest EBIT exposure to China, J.P. Morgan said.
- Around 85% of consolidated sales of Corona beer maker Constellation Brands STZ.N comes from imported Mexican beer, according to J.P. Morgan. Piper Sandler sees a potential impact of $3 to $3.75 per share hit to fiscal 2026 earnings of Constellation if the tariffs last a full fiscal year.
OTHERS
- Tariffs on Mexico could hurt appliance distributors such as Whirlpool WHR.N, BofA Global Research said on Jan. 29.
- Construction products companies Masco MAS.N and Fortune Brands FBIN.N have some sourcing exposure to China. But they also have dual suppliers for many products and could offset some of the tariff hurdles with price hikes, BofA said.
- Builders FirstSource BLDR.N could benefit in the short-term from tariffs on Canadian lumber imports, but that would likely be offset by lower starts from homebuilders.
INFLATION
- Barclays strategists said the tariffs could lift the personal consumption expenditure index, the Fed's preferred inflation gauge, by 35-40 basis points on a yearly basis over a 12-month period.
- Goldman Sachs said tariffs, if implemented, would boost the U.S PCE index, excluding volatile items such as food and energy, by 0.9%, according to estimates made before the Feb. 1 tariff announcement.
($1 = 0.9700 euros)
(Reporting by Johann M Cherian, Pranav Kashyap and Lisa Pauline Mattackal in Bengaluru; Editing by Sriraj Kalluvila)
((johann.mcherian@thomsonreuters.com;))
Comments