Industrial giants regain footing as tariff turmoil recedes
US industrial companies at present are reporting their best year-on-year revenue growth, since the first quarter of 2023 at 6.3%
INDUSTRIAL companies have been on a roller coaster this year, as they have tried to adjust to the shifting trade policies of US President Donald Trump.
This quarter, however, executives suggested the confusion may be receding, as corporations have had time to adjust to the higher levies on US imports of foreign goods.
Unlike in the first half of the year, some of the US bellwethers that reflect the “real economy” – heavy machinery, engine makers and construction firms – have navigated the environment with strong demand, cost-cutting and price increases to offset the Trump administration’s tariffs.
While there are still plenty of concerns about the coming quarters, the unpredictability factor has faded, executives say.
“Certainly, from a cost standpoint and maybe from a demand standpoint... tariffs are no longer kind of the main event here,” Michael Larsen, chief financial officer at Illinois Tool Works, said on a post-result analyst call last week.
Companies that reported results between Oct 16 and Oct 31 put the total estimated hit to global companies’ bottom lines at about US$7 billion, said a Reuters analysis, though the markets are still only about midway through the earnings season globally.
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In the second quarter, that figure was estimated to be in the range of US$16.2 billion to US$17.9 billion.
Stronger revenue growth
US industrial companies at present are reporting their best year-on-year revenue growth since the first quarter of 2023 – at 6.3 per cent – data from the London Stock Exchange Group (LSEG) indicated.
Over the summer, equipment maker Caterpillar estimated tariffs would cost the firm between US$1.5 billion and US$1.8 billion in 2025.
In results released on Wednesday (Oct 29), it narrowed that range to US$1.6 billion to US$1.75 billion after reporting a strong quarter, and its shares rose by 12 per cent.
“Generally speaking, industrial companies are doing a pretty good job managing through the uncertainty and the changes in the tariff landscape,” said Joshua Schachter, chief investment officer at Easterly Asset Management.
Logistics giants United Parcel Service (UPS) and FedEx cut costs to offset the scrapping of duty-free status for low-value e-commerce shipments.
However, UPS has also sharply cut its payrolls, jettisoning 48,000 jobs in the face of continued pressure on its business this year.
Analysts fear the bleak outlook among lower and middle-income earners that has hit consumer companies like Newell will reach other parts of the economy.
In addition, the Trump administration reached agreements with numerous nations that set levies on imports, between 15 per cent and 20 per cent for many, after a previous pause left them at 10 per cent. That effect has not yet been fully felt.
“This is the real beginning of when the effects of tariffs would have hit,” said Angela Santos, partner and customs practice group leader at ArentFox Schiff. “We’re only in October and the increases for reciprocal tariffs started in August, so it hasn’t been that long.”
European companies still facing the heat
Some European companies that rely on US sales have had it worse, as US importers are less likely to buy their products due to the high levies.
SKF, a Swedish bearings maker considered a global manufacturing barometer, expects weak short-term demand as customers remain hesitant due to tariffs and uncertainty.
“If we can get a bit more calm and stability, then I think we will see demand return,” SKF chief executive officer Rickard Gustafson told Reuters on Wednesday.
Swedish construction equipment maker Hiab told Reuters that orders have been slowing since mid-February due to trade tensions.
The German Engineering Federation VDMA, which represents 3,600 machinery and plant engineering companies, has warned that more than half of German and European machinery exports could be hit with new tariffs if Washington includes more products on its list of aluminium and steel levies.
European carmakers such as Volkswagen have been hit particularly hard; the German carmaker flagged a US$5.8 billion tariff hit in its most recent results.
Yale University’s Budget Lab, which has been tracking trade policies, says the effective US tariff rate stood at 18 per cent as of mid-October, highest in more than 90 years.
The Trump administration’s new 25 per cent tariffs on imported medium and heavy-duty trucks and parts kicked in on Nov 1, alongside a 10 per cent tariff on imported buses.
The full effects are still to be felt as industrial companies are going through inventory that has not been hit with tariffs yet, said Don Marleau, managing director for metals and capital goods at S&P Global.
“In a lot of cases, we don’t have higher tariff costs yet. We have higher estimates for tariff costs.” REUTERS
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