Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: American CEOs have been trying to avoid talking about how
Speaker 2: tariffs will impact their business for a while, but this
Speaker 2: earning season something is starting to change.
Speaker 1: After months and months and months of US calling companies
Speaker 1: and CEOs saying what do you think about tariffs? What
Speaker 1: do you think about tariffs, we're seeing them have to
Speaker 1: actually start making decisions for tariffs.
Speaker 2: Shelley Banjo oversees Bloomberg's business coverage for the Americas, and
Speaker 2: as she sifted through a recent flurry of reports from
Speaker 2: Q one, one thing became clear. The time for ignoring
Speaker 2: Trump's trade war is over.
Speaker 1: What we are seeing now with this earning season is
Speaker 1: that they have to quantify. Okay, this is going to
Speaker 1: be our projected hit to our profits, to our sales,
Speaker 1: what have you to the tariffs. Here are some of
Speaker 1: the business decisions we're starting to make.
Speaker 2: One of the most sobering projections came from General Motors,
Speaker 2: which just lowered its earning, saying it could suffer as
Speaker 2: much as a five billion dollar hit from auto tariffs.
Speaker 1: That is the largest sum that we've seen quantified yet
Speaker 1: among companies.
Speaker 2: But Shelley says not every company is approaching these economic
Speaker 2: headwinds with the same level of urgency. Because there's no
Speaker 2: one playbook for how to respond to tariff whiplash, I.
Speaker 1: Had to sort of figure out, Okay, how are these
Speaker 1: companies waiting through it since no one's really telling them
Speaker 1: what to do. Came up with these sort of three
Speaker 1: scenarios from what we've seen people doing so far.
Speaker 2: Scenario one, ride the tariffs out.
Speaker 1: So there's a bucket of companies that are like, we
Speaker 1: still don't know, it's too soon to tell.
Speaker 2: Scenario two adapt to a new normal.
Speaker 1: Companies that are we know that there's going to be
Speaker 1: a tariff hit, but we think we can rejigger our
Speaker 1: business to be able to absorb it. So that means
Speaker 1: let me furlough employees or cut staff, or hold up
Speaker 1: on buybacks.
Speaker 2: And then there's scenario three, the unerual motors route.
Speaker 1: Then there's this third bucket of companies, which are sort
Speaker 1: of a holy you know what moment.
Speaker 2: As earning season forces some companies to get real with
Speaker 2: their shareholders and the public about the impacts of tariffs.
Speaker 2: Just what picture are they painting for their future and
Speaker 2: what could that mean for their bottom line. I'm Sarah Holder,
Speaker 2: and this is the big take from Bloomberg News today
Speaker 2: on the show, what corporate earnings are revealing about how
Speaker 2: companies plan to weather the trade war and what it
Speaker 2: will mean for supply chains, stocks and prices. Bloomberg Shelly
Speaker 2: Banjo says, looking at these three buckets of business reactions
Speaker 2: to tariffs can serve as a guide to understanding how
Speaker 2: US companies are navigating uncertainty, shifting their strategies, and communicating
Speaker 2: their path forward. The first bucket are these companies that
Speaker 2: say they won't see much of any effect from tariffs.
Speaker 2: They're kind of waiting and seeing, but they might be
Speaker 2: a little bit more insulated. What businesses are we talking
Speaker 2: about there?
Speaker 1: So pharma is a big question mark right now because
Speaker 1: so far they've been spared from a lot of tariffs.
Speaker 1: There's a separate sort of investigation that they're looking into
Speaker 1: that are going to be sector specific tariffs on pharma
Speaker 1: two thirty two tariffs. They're trying to figure out is
Speaker 1: this going to impact pharma? So right now it is
Speaker 1: sort of defensible for a company like Pfizer to say
Speaker 1: we're not exactly sure what's going to happen. That being said,
Speaker 1: a lot of their competitors have come out and said, well,
Speaker 1: we think it's going to impact us by X one
Speaker 1: hundred million dollars. At the very least, they're giving investors
Speaker 1: some sort of indication of how and when and why
Speaker 1: this would hit.
Speaker 2: Would you say that this first bucket of companies is
Speaker 2: being pollyanna ish about their expectations for how tariffs will affect.
Speaker 1: Then I think it was the norm a few weeks
Speaker 1: ago to say, we don't know this is going to
Speaker 1: exclude tariff impacts because we just had a lot less information.
Speaker 1: Now that we have a little bit more information, it
Speaker 1: becomes a little less defensible to model out because some
Speaker 1: of the decisions that you're making now for the remainder
Speaker 1: of the year, you really have to make them now,
Speaker 1: not having a full picture. Trump is going to change
Speaker 1: his mind probably or change things. So this whole idea
Speaker 1: of we have to wait and see because Trump could
Speaker 1: change his mind is a defensible argument. But if you
Speaker 1: are running a big, multinational global business, it sort of
Speaker 1: seems a little pollantage to say, well, we're just going
Speaker 1: to wait and see what happens.
Speaker 2: Okay, so let's talk about the second bucket, which are
Speaker 2: the companies that will face some teriff related challenges but
Speaker 2: might ultimately be able to work around them.
Speaker 1: So some of the companies that came out and said
Speaker 1: that recently this week was Coca Cola, Aultria, the cigarette maker.
Speaker 1: These companies said, you know what, we fully realized that
Speaker 1: tariffs are here. They are baked into our forecast, they're
Speaker 1: baked into our outlooks. But we think we're still going
Speaker 1: to be able to absorb them as long as they
Speaker 1: stay the way they are, because we'll move things around.
Speaker 1: These particular companies didn't get into some of the specifics,
Speaker 1: but different CEOs that I've spoken to. So there are
Speaker 1: multiple levers you can pull. You hold your capex, for example,
Speaker 1: like you don't build that factory that you're going to build.
Speaker 1: You maybe put a pause on share buybacks. We saw
Speaker 1: that with General Motors this week, or you put a
Speaker 1: hiring freeze, you don't go into new business lines. There
Speaker 1: are going to be companies who are going to have
Speaker 1: to cut a lot deeper, and that's going to end
Speaker 1: up hurting those companies. But there's a sort of bucket
Speaker 1: of companies that are saying, so far this is manageable.
Speaker 1: It's not going to be great. We're not going to
Speaker 1: grow for SAE like as much as we would love to,
Speaker 1: but we're still going to be able to be okay.
Speaker 2: Thinking about adaptations. Government data released yesterday showed a surge
Speaker 2: in imports from companies that are looking to take advantage
Speaker 2: of the president's ninety day pause. Is that something you're
Speaker 2: seeing in terms of how companies are working around these tariffs,
Speaker 2: preparing now for or future pain.
Speaker 1: Definitely. We saw that with the car company, so they
Speaker 1: had a huge run up in car sales because think
Speaker 1: about that, it's a big ticket item. You've been thinking
Speaker 1: about it, You've been talking to your family about buying
Speaker 1: a car. You maybe visited a couple of car dealerships,
Speaker 1: so you think to yourself, Okay, if I'm going to
Speaker 1: buy a car in the next six months, now's the
Speaker 1: time to do it before it gets more expensive. The
Speaker 1: issue we're running up against now with the cars is
Speaker 1: how much more inventory do you have left of that
Speaker 1: Tara free inventory when our company's going to start to
Speaker 1: raise the prices. We had one CEO of a company
Speaker 1: that makes consumer product goods that you can find in
Speaker 1: like a home depot or a target come in and
Speaker 1: say you know what, this year, the best sale might
Speaker 1: just be Mother's Day, which is not something you normally
Speaker 1: think about. But if you think about the holidays, you know,
Speaker 1: many months from now, sure you might be ten to
Speaker 1: fifteen percent off, but if everyone's going to start to
Speaker 1: raise prices in the next couple of weeks, your cheapest
Speaker 1: price for that product might be right about now.
Speaker 2: So are telling you, you know, we are now starting
Speaker 2: to adapt to this, We're starting to plan for this.
Speaker 2: But why weren't they planning for it before Trump even
Speaker 2: got elected? When he was talking about this constantly on
Speaker 2: the campaign trail.
Speaker 1: Yeah, that's a good question that I've been asking. We
Speaker 1: had someone in this morning that said, well, nobody knew
Speaker 1: this was going to happen, And I said, well, nobody
Speaker 1: wanted maybe this to happen. But if you were listening
Speaker 1: to Trump on the campaign trail for many, many months,
Speaker 1: you knew this was going to happen. I think the
Speaker 1: issue is that it never felt certain. There wasn't like, Okay,
Speaker 1: this is what's going to happen. Here's the percentage rates,
Speaker 1: here are the countries that are going to be impacted.
Speaker 1: It was always this very broad you know, we're going
Speaker 1: to bring manufacturing back to the US. We're going to
Speaker 1: give tariffs to everyone around the country, and you can't
Speaker 1: really manage a business unless you have the specifics around that.
Speaker 1: You did see companies even since Trump one point zero,
Speaker 1: building up their infrastructure and manufacturing in the US. A
Speaker 1: lot of pharma companies Johnson and Johnson, for example, Eli
Speaker 1: Lilly like bringing creating manufacturing capacity in the US over
Speaker 1: the last few years. But I think a lot of
Speaker 1: CEOs were sort of waiting for specifics.
Speaker 2: When we come back, Shelley and I dig into bucket
Speaker 2: number three, the companies that know for sure that the
Speaker 2: tariffs are going to be a big blow. We talk
Speaker 2: about how they plan to navigate those challenges and what
Speaker 2: those plans mean for investors and consumers Today. General Motors
Speaker 2: cut its profit outlook by billions of dollars after grappling
Speaker 2: with the effects of auto tariffs on its business. It
Speaker 2: revised its outlook from as much as fifteen point seven
Speaker 2: billion dollars down to as little as ten billion dollars.
Speaker 2: The motorcycle maker Harley Davidson withdrew its forecast for twenty
Speaker 2: twenty five, saying tariffs could cost them as much as
Speaker 2: one hundred and seventy five million dollars this year. GM
Speaker 2: and Harley are examples of companies that can't take a
Speaker 2: weight and see approach to tariffs. They're in that third
Speaker 2: bucket of businesses that Bloomberg Shelly Banjo has been tracking.
Speaker 1: These companies are sort of seeing the rubbers hitting the road.
Speaker 1: We saw Craft Hignds saying we need to start managing
Speaker 1: our business for decline and consumer demand. And you saw
Speaker 1: Jet Blues saying not only are we shifting our business
Speaker 1: because of worsening economic demand and consumers, but that it's
Speaker 1: getting worse, like things are not good and they seem
Speaker 1: to be getting worse.
Speaker 2: What other sectors and companies might be most impacted.
Speaker 1: I think here the consumers really the problem, the ones
Speaker 1: that are really consumer focused. Because you're getting dinged by
Speaker 1: a lot of things. You're getting dinged by high prices,
Speaker 1: by how hard it is to move supply chains quickly enough.
Speaker 1: You don't have that customer base that is really locked in.
Speaker 1: I mean, consumers have so much choice that when it's
Speaker 1: cheaper somewhere else, I'm going to go somewhere else pretty easily.
Speaker 1: And so that's I think the biggest weakness see is
Speaker 1: a lot of these consumer companies. So we saw companies'
Speaker 1: CEOs of Target, Walmart, others go up to the White
Speaker 1: House and sort of tell Donald Trump to his face,
Speaker 1: there will be empty shelves come holiday season if we
Speaker 1: don't get a little relief. So what a lot of
Speaker 1: them are asking for is could we have a little
Speaker 1: bit of a grace period to shift some of our production?
Speaker 1: Could we you know, can you work with us here?
Speaker 1: We want to move some of our production. We want
Speaker 1: to move some of our manufacturing. But it's not something
Speaker 1: that can happen overnight. So that's sort of what they're
Speaker 1: asking Donald Trump in the administration.
Speaker 2: For How long would that grace period have to be
Speaker 2: for them to really prepare?
Speaker 1: It depends who you ask. I mean there are some
Speaker 1: people car factories, for example, who say, you know, it
Speaker 1: takes four or five years to build a plant. So
Speaker 1: there is one strategy of just waiting out the administration,
Speaker 1: right like you take pain for four years, rather than
Speaker 1: build a plant that you might not use. It's going
Speaker 1: to be higher cost. I mean, that is certainly a
Speaker 1: strategy that we've seen some companies talking about. Some of
Speaker 1: those weight and C strategies might actually be weighted out strategies,
Speaker 1: but we don't. We don't really know for sure. Some
Speaker 1: companies have talked about we can move a whole bunch
Speaker 1: of production within six months between maybe China to India
Speaker 1: or China to Vietnam. It's much harder to move something
Speaker 1: from China to the US.
Speaker 2: When you're looking at the earning reports and seeing companies
Speaker 2: sort of admit to themselves and to investors that tariffs
Speaker 2: are going to have a major hit on them, what
Speaker 2: kind of numbers are you seeing? What is the magnitude
Speaker 2: of that challenge?
Speaker 1: So right now it is not as big as one
Speaker 1: would think. I mean, so far, we saw GM come
Speaker 1: out with the biggest number yet at five billion dollars.
Speaker 1: Before that, we had seen things like two hundred million,
Speaker 1: five hundred million, eight hundred and fifty million, depending on
Speaker 1: the company. As earning season plays out, we're going to
Speaker 1: start to get even more specificity from the Trump administration
Speaker 1: on the tariffs, and then we'll start to see the
Speaker 1: different impacts. And all of these are projections, So what
Speaker 1: we'll get next quarter is what actually happened. The more
Speaker 1: worrisome sign, though, is this hit to innovation. We talked
Speaker 1: to a couple of companies that said, well, we're not
Speaker 1: going to launch a new product this year because it's
Speaker 1: too dangerous, it's too risky, and it takes a lot
Speaker 1: of money, and we don't even know if we're going
Speaker 1: to get it produced in the place that we want
Speaker 1: to make it. So at that point, you're stopping companies
Speaker 1: from actually coming out to even launch new things, which
Speaker 1: come Christmas time is going to mean that a lot
Speaker 1: of the hot new items won't actually even be there.
Speaker 2: Less investment and innovation could also mean lost jobs. Private
Speaker 2: sector numbers released this week by ADP showed a sharp
Speaker 2: slowdown and hiring, and that unease could also show up
Speaker 2: in tomorrow's jobs report, which will be the first to
Speaker 2: reflect President Trump's Liberation Day tariffs.
Speaker 1: When you're talking to companies, all of a sudden, job
Speaker 1: postings are disappearing, they're not filling those jobs. With the
Speaker 1: big companies, you have a seen huge layoff numbers. Yet
Speaker 1: with a lot of the smaller companies, like the one
Speaker 1: I was saying about with the innovation, they were saying, well,
Speaker 1: we don't really need a new product development team right
Speaker 1: now if everything is is paused. And so I said
Speaker 1: to that CEO, Well, are you furlowing them? They're like,
Speaker 1: we're just going to fire them because we'll bring them
Speaker 1: back when we can. But right now there's nothing for
Speaker 1: them to.
Speaker 2: Do, so they're making sort of short term decisions that
Speaker 2: might have long term impacts exactly based on the current uncertainty.
Speaker 2: What are the warning signs for investors? Is there sort
Speaker 2: of a canary in the coal mine in these earning
Speaker 2: reports that they're looking at right now?
Speaker 1: So this question has been very interesting to me. The
Speaker 1: first couple of companies that came out and said tariffs
Speaker 1: are going to impact us and here's how and here's why,
Speaker 1: a lot of them, we saw their stocks go up.
Speaker 1: And then companies that said we can't quantify the impacts
Speaker 1: of our tariffs, we saw the stocks go down. And
Speaker 1: I asked my porters what is going on, and we
Speaker 1: spoke to a number of investors, a number of analysts
Speaker 1: that are saying, at this moment, CEOs are actually getting
Speaker 1: rewarded for their honesty. They're saying, we are going to
Speaker 1: manage this business as if there was a recession coming.
Speaker 1: At Bastian, the Delta CEO was one of the first
Speaker 1: CEOs to stand up and say I don't know if
Speaker 1: there's a recession. We might not know if there's a recession,
Speaker 1: but I'm going to manage the business as if there
Speaker 1: is a recession coming. I'm going to betten down the hatches,
Speaker 1: reduce my costs, really be careful about any sort of
Speaker 1: hiring or anything like that, and stock what up. And
Speaker 1: I think this idea of investors and analysts rewarding these
Speaker 1: CEOs and actually taking this seriously and actually managing their
Speaker 1: business for the time that we're in rather than managing
Speaker 1: the business for what they hope might happen.
Speaker 2: Is there going to be a point at which the
Speaker 2: Trump administration needs to take some action to help out
Speaker 2: some of these companies and these sectors.
Speaker 1: Well, I think you're seeing that now. So this week
Speaker 1: you saw the auto parts tariffs exhibit and Donald Trump
Speaker 1: coming out and saying, Okay, we see you auto companies.
Speaker 1: We see you're trying your moving production, You're stopping production
Speaker 1: in different parts of the country, Like we're going to
Speaker 1: give you a break on these auto parts that really
Speaker 1: will cripple you. So I think you sort of have
Speaker 1: these companies doing this calculus saying, we know we're not
Speaker 1: going to win everything. What can we ask for what
Speaker 1: is a manageable thing to push for?
Speaker 2: Is there a point at which the negotiating power might
Speaker 2: switch and companies might have more power to ask for
Speaker 2: more of what they want from the Trump administration.
Speaker 1: I mean, that's the question, right, is that it wasn't
Speaker 1: the media, it wasn't Trump's advisors, it wasn't a number
Speaker 1: of different factions that sort of had him rethink is tariffs.
Speaker 1: It was the market. So is the market sort of
Speaker 1: this last big force that Trump takes seriously? So if
Speaker 1: we get to a point where the stock market continues
Speaker 1: to go down, where consumers stop buying, where jobs start dropping,
Speaker 1: where there's nothing else that you can really argue with,
Speaker 1: then you know, maybe that's when we start to see
Speaker 1: some more of those concessions. I don't think we're there
Speaker 1: yet at that point, but you know, you are seeing
Speaker 1: like these different negotiations happening, and then that makes it
Speaker 1: even harder to predict what's going on because then you
Speaker 1: can't even count on that. You know, you can't even
Speaker 1: count on these big tariffs that are impacting because if
Speaker 1: they're going to be switched and reversed anyway, you don't
Speaker 1: want to build a new plant. If you're not going
Speaker 1: to have to.
Speaker 2: This is the Big Take from Bloomberg News. I'm Sarah Holder.
Speaker 2: This episode was produced by Alex tie. It was edited
Speaker 2: by Patty Hirsh, Aaron Edwards, and Patherine Larkin. It was
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