Here are the US conglomerates that'll be hit hardest by Trump escalating the trade war with China
Emerson Electric Co.
Ticker: EMR
2018 China sales exposure: 10%
2018 expected gross tariff headwind as a % of cost of goods sold: 0.3%
2019 share price performance: positive 13%
Market cap: $41 billion
RBC commentary:
"Sizes $125 mil of tariff impact in FY2019, up significantly from $25 mil in FY2018. EMR's fiscal year starts in Sept, which may elevate its FY2019 tariff impact vs. peers. Aims to pass through price increases to keep price/cost net neutral."
3M
Ticker: MMM
2018 China sales exposure: 10%
2018 expected gross tariff headwind as a % of cost of goods sold: 0.1%
2019 share price performance: negative 5%
Market cap: $104 billion
RBC commentary:
"Expects $100 mil of cost headwinds (or 10-15c of EPS) from tariffs in 2019. However, pricing gains should more than offset cost inflation to keep the price/cost spread positive."
Gates Industrial
Ticker: GTES
2018 China sales exposure: 9%
2018 expected gross tariff headwind as a % of cost of goods sold: 0.6%
2019 share price performance: positive 18%
Market cap: $5 billion
RBC commentary:
"Sized total tariff impact at $10-$15 mil in 2018. Expects to offset input pressures with pricing and/or productivity given its manufacturing footprint, +60% replacement market focus, and brand strength."
Idex Corporation
Ticker: IEX
2018 China sales exposure: 9%
2018 expected gross tariff headwind as a % of cost of goods sold: 0.6%
2019 share price performance: positive 22%
Market cap: $12 billion
RBC commentary:
"One of the sector's 'Price-Makers', with positive price-cost YTD; focuses on maintaining its 20-40 bps of pricing net of inflation spread; the company's pricing actions include a combination of actual price increases and surcharges."
Danaher Corporation
Ticker: DHR
2018 China sales exposure: 9%
2018 expected gross tariff headwind as a % of cost of goods sold: 0.3%
2019 share price performance: positive 28%
Market cap: $94 billion
RBC commentary:
"Tariffs expected to be a $12-$13 mil per quarter headwind. Four-pronged countermeasures: (1) price increases; (2) changes to supply chain; (3) modifying manufacturing locations; and (4) seeking exemptions for certain products."
AMETEK Corporation
Ticker: AME
2018 China sales exposure: 9%
2018 expected gross tariff headwind as a % of cost of goods sold: 0.2%
2019 share price performance: positive 27%
Market cap: $20 billion
RBC commentary:
"Sizes $125 mil of tariff impact in FY2019, up significantly from $25 mil in FY2018. EMR's fiscal year starts in Sept, which may elevate its FY2019 tariff impact vs. peers. Aims to pass through price increases to keep price/cost net neutral."
Fortive Corp.
Ticker: FTV
2018 China sales exposure: 8%
2018 expected gross tariff headwind as a % of cost of goods sold: 1.6%
2019 share price performance: positive 23%
Market cap: $28 billion
RBC commentary:
"Section 232 should have a small impact, but Section 301's focus on electronics will impact Fluke and Tektronix. Fortive's strong pricing power and global supply chain/manufacturing footprint helps offset any inflationary pressures."
Graco Inc.
Ticker: GGG
2018 China sales exposure: 8%
2018 expected gross tariff headwind as a % of cost of goods sold: 1.0%
2019 share price performance: positive 22%
Market cap: $8 billion
RBC commentary:
"Mixed exposure to tariffs; US-centric manufacturing model suggests more products need to cross borders, but Graco's robust gross margins and pricing power help offset tariff pressures; managed situation in 2018 and expects to pass ~2.0ppts in pricing in 2019."
Ingersoll-Rand
Ticker: IR
2018 China sales exposure: 7%
2018 expected gross tariff headwind as a % of cost of goods sold: 0.6%
2019 share price performance: positive 34%
Market cap: $30 billion
RBC commentary:
"Expects gross tariff headwinds to be ~$70/~$100 mil in 2018/2019; saw some pause in China Industrial frontlog activity in 3Q18; baking in a jump to 25% tariffs, though does not expect to capture any spread as pricing should adjust."
Eaton Corp.
Ticker: ETN
2018 China sales exposure: 7%
2018 expected gross tariff headwind as a % of cost of goods sold: 0.4%
2019 share price performance: positive 17%
Market cap: $34 billion
RBC commentary:
"Sizes $65 mil tariff impact for 2018 and expects to offset it with price and cost-out with no negative EPS impact; expects an incremental $100 mil headwind in 2019; more concentrated in Electrical."
Honeywell Inc.
Ticker: HON
2018 China sales exposure: 7%
2018 expected gross tariff headwind as a % of cost of goods sold: <0.1%
2019 share price performance: positive 30%
Market cap: $125 billion
RBC commentary:
"Confident that 2018 tariff impacts should be 'minor'; coping with direct and indirect pressures through pricing increases (~2/3) and alternative sourcing (~1/3); 2019 headwinds could be 'hundreds of millions.'"
Johnson Controls
Ticker: JCI
2018 China sales exposure: 6%
2018 expected gross tariff headwind as a % of cost of goods sold: 0.3%
2019 share price performance: positive 34%
Market cap: $35 billion
RBC commentary:
"Assumes full impact of Section 232 and 301 tariffs, which will present a $130-$140 mil cost headwind, split roughly evenly between FY2018 and FY2019. Expects to maintain positive price/cost spread in FY2019."
Dover Corp.
Ticker: DOV
2018 China sales exposure: 6%
2018 expected gross tariff headwind as a % of cost of goods sold: 0.2%
2019 share price performance: positive 37%
Market cap: $14 billion
RBC commentary:
Sized a $55 mil commodity headwind for 2018 (-6% EPS headwind) including a minor contribution from tariffs; evaluating potential alternative sourcing.
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