(Reuters) – Concerns about US-China trade wars 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 on storm.
FILE PHOTO: Flags of the United States and China appear at the American International Chamber of Commerce (AICC) booth during the China International Fair for Trade in Services in Beijing, China, May 28, 2019. REUTERS / Jason Lee
Trade negotiations changed to Shanghai on Tuesday, with stock market investors sensitive to the fallout from the years-long conflict and any signs that it may escalate.
Tariffs 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 increased uncertainty as they struggle with a sluggish global economy, including weak economies in Europe and Japan.
Part supplier O'Reilly Automotive ( ORLY.O ) said in its conference call last week that it raised the prices of its products to offset higher costs associated with the tariff rates.
Network manufacturer Juniper Networks Inc ( JNPR.N ) on Thursday missed the centerpiece of the marginal guidance due to the tariffs, saying it expected pressure to continue, even though it manages operating expenses to mitigate the damage.
Of S&P 500 components that reported revenue in the second quarter, export-focused companies beat analyst expectations 77% of the time, while companies focused on the domestic economy exceeded expectations only 66% of the time, according to an analysis by Credit Suisse .
It indicates that export-oriented companies feel the trade war less 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 on Monday morning have beaten 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 strongly 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. The swing of expectations will drive the Federal Reserve to cut interest rates, but also suggests that investors are becoming less sensitive to uncertainty surrounding the trade war, and the S&P 500 has risen 20% so far this year and hit record highs last week.
Mattel's ( MAT.O ) share has risen 16% since Thursday, when the toymaker's quarterly results beat expectations while warning of the impact of an escalation of the trade war.
“We keep an eye on the potential tariffs that can be implemented and, if implemented, will affect the entire toy industry. We have contingency plans, and we work closely with retailers to ensure that we are in line with our approach to curbing tariffs, ”Mattel CEO Ynon Kreiz said at a conference call last week.
Philadelphia Semiconductor Index. SOX has risen 38% in 2019, although trade tensions and US restrictions on sales to Chinese telecom Huawei are making it more difficult to predict when US chip manufacturers will recover from a global economic downturn.
Investors were surprised last week after Texas Instruments ( TXN.O ) said that US and China trading tensions did not hamper the opportunity to operate in China, while Intel ( INTC.O ) said on Thursday that customers who were concerned about potential tariff rates on chips were buying processors ahead of time.
"We really believe that the Q2 action drew from the second half to the first half," CFO George Davis told Intel to Reuters after the earnings report. "Depending on how the trade discussions are going, 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."  China recently signaled that it would allow Chinese companies to make some duty-free purchases of US commodities, while Washington has urged companies to apply for exemptions to a national security ban on sales to Huawei, but as we enter the talks, neither side has taken action measures intended to show their benevolence.
Reporting by Caroline Valetkevitch and Noel Randewich; Editing by Tom Brown