While US President Donald Trump was unleashing an escalating series of import tariffs in the first half of this year, economists and business leaders heatedly debated whether foreign exporters or American consumers would mostly foot the bill.
Turns out, the early evidence thus far shows that the tariffs are coming at the expense of US corporate profits. The squeeze is posing a particular challenge to corporate treasurers and other financial leaders, who are tasked with quantifying the damage from tariffs, conceiving mitigation strategies and determining how and when to recognise revenue and costs as the trade flows shift unpredictably. Offering earnings guidance estimates to shareholders in such a shifting environment has not exactly been easy either.
Contrary to what many international trade experts had predicted, Trump’s tariffs have not yet caused a spike in prices for goods at the consumer level. US core inflation has remained below 3% through June. It may be that overseas exporters are eating part of the cost at the source. (Of course, the US importer is the party that technically pays the tariffs upon arrival of the goods on US shores.)
Based on multiple quarterly earnings reports in July, it is the profit margins at US companies that are taking the most quantifiable hit from the tariffs and uncertainty.
Tracy Schuerman, Chief Financial Officer at Helen of Troy Ltd., is leading the tariff mitigation effort at the Texas-based provider of housewares and beauty products. Schuerman’s tighter cash controls and disciplined capital deployment have helped, along with “strategic price increases,” but the company is uncomfortable enough with the outlook that it declined to offer full-year earnings guidance.
“The evolving trade disruption, ongoing uncertainty and the potential impact on inflation, consumer confidence and consumer spending in our discretionary categories make longer-term forecasting challenging,” Schuerman said during the Helen of Troy earnings conference call.
“We adjusted our cash preservation measures but remain disciplined in our approach, given continued tariff uncertainty. Our current cost reduction measures include suspension of non-critical projects and capital expenditures, except those supporting supplier diversification and dual sourcing projects, reduction of personnel costs and extended pause on those projects and travel spend, prioritisation of marketing, promotions and product development investments with the highest returns.”
At Levi Strauss & Co., Chief Financial and Growth Officer Harmit Singh is busy with tariff mitigation to reduce the San Francisco-based clothier’s initial estimate that pointed to a gross margin narrowing of 50-basis-points for 2025.
“Our key mitigation initiatives include promotion optimisation, targeted pricing actions, vendor negotiations and further supply chain diversification,” Singh said during the Levi Strauss earnings call.
“After mitigation, we expect the net impact of tariffs to be about a 20-basis-points headwind to our full-year gross margin or approximately a 40-basis-point impact in the second half,” Singh estimates.
Sheryl Ann Lisowski, Chief Accounting Officer and Treasurer at industrial bolt maker Fastenal Co., is approaching the tariff grief by pursuing adjustments to sourcing. Lisowski, who also serves as interim CFO, acknowledges the impact on corporate accounting and the need eventually to pass along the higher costs downstream.
“Significant tariffs have been applied to products from China as well as steel, including steel derived products like fasteners on a global basis,” Lisowski noted during the Minnesota company’s earnings call.
“We continue our long-term trend on diversifying our supply chain where possible to the size and timing of our suppliers’ pricing actions and we added some inventory to our own balance sheet,” Lisowski added. “That said, supply chains have gotten more expensive and a part of our response over time will be incremental pricing. We have been proactively engaging with our customers for several months.”
