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Trade jitters at US companies ahead of US-China talks in Shanghai

Concerns about the US-China trade war go high during the current US quarterly reporting season, with companies as diverse as Juniper Networks and O & # 39; Reilly Automotive regretting the consequences, but say they find ways to weather the storm. [19659002] Trade talks shifted to Shanghai on Tuesday, with stock market investors sensitive to the fallout from the years-long conflict and any signs that it could escalate.

Customs rates were mentioned in about a third of conference calls held by S&P 500 companies that reported quarterly results through July 26, according to FactSet.

The 71 companies that flagged tariffs were up from the 50 companies that discussed tariffs in the same timeframe during the first quarter of the season, but less than 99 a year ago when tariffs were an emerging issue for US companies.

Many of these companies outlined their plans to minimize the impact of the trade war, which has created uncertainty when struggling with a sluggish global economy, including weak economies in Europe and Japan.

Part supplier O & # 39; Reilly Automotive said in the conference call last week that they were raising prices for their products to offset higher costs associated with the tariff rates.

Network maker Juniper Networks on Thursday missed the center of margin guidance due to tariffs, saying it expected pressure to continue, even though it manages operating expenses to curb the damage.

Of the S&P 500 components that reported revenue in the second quarter, export-focused companies have beaten analyst expectations 77% of the time, while companies focused on the domestic economy have exceeded expectations only 66% of the time, according to an analysis by Credit Suisse.

It indicates that export-oriented companies feel that the trade war is smaller than investors expected, said Patrick Palfrey, a credit analyst at Credit Suisse.

"Trading is a worsening factor, as opposed to the primary driver of the downturn," Palfrey said.

Revenue from the S&P 500 is expected to have increased only 0.6% in the second quarter from a year ago, according to IBES data from Refinitiv. Much of the slowdown reflects tough comparisons to a year ago, when the US tax cut package led to a 24.9% jump in revenue in the second quarter.

About 76% of the 222 companies that reported as of Monday morning have beat analysts' earnings expectations, in line with the recent trend.

Revenue expectations for the third quarter have now been negative, but revenues are expected to decline 0.6% from a year ago, based on Refinitive data.

Wall Street has reacted sharply over the past year to tweets from US President Donald Trump, suggesting in various ways progress and setbacks in the resolution of the trade dispute.

Concerned about expectations that the Federal Reserve will reduce interest rates, but also suggests that investors will be less sensitive to uncertainty around the trade war, the S&P 500 has risen 20% to date and so far record highs last week.

Mattel's share has risen 1[ads1]6% since Thursday, when the toymaker's quarterly results beat expectations, while warning of the impact of an escalation of the trade war.

"We are looking at the potential tariff that can be implemented and if implemented will affect the entire toy industry. We have contingency plans in place, and we are working closely with retailers to ensure that we are in line with our mitigation approach the rates, "Mattel CEO Ynon Kreiz said at a conference call last week.

The Philadelphia Semiconductor Index has risen 38% in 2019, even as trade tensions and US restrictions on sales to Chinese telecom Huawei make it more difficult to predict when US chip manufacturers will recover from a global economic downturn.

Investors were surprised last week after Texas Instruments said that trade tensions in the US and China are not hindering the ability to operate in China, while Intel on Thursday said customers worried about potential tariffs on chips buying processors in advance.

"We really believe that the Q2 action diverged from the second half to the first half," Intel chief financial officer George Davis told Reuters after the earnings report. "Depending on how the trade discussions go, there may be some extra activity there, but we don't expect the same level, if at all, during the third quarter. We forecast demand based on the signals we get from our customers." [19659002] China recently signaled that it would allow Chinese companies to make some duty-free purchases of US farm goods, while Washington has urged companies to apply for exemptions to a national security ban on sales to Huawei. But as we enter into the conversations, neither side has implemented the measures intended to show their goodwill.

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