Tariffs Impact Earnings as Companies Adapt to New Pricing Strategies

Impact of Tariffs on Corporate Earnings

By Juveria Tabassum

Consumer Reactions to Price Changes

Jan 26 (Reuters) - Many U.S. companies have sought to reassure investors that tariffs are "manageable," but early earnings-season comments suggest profit margins are at risk with consumers balking at higher prices.

Company Strategies in Response to Tariffs

Bellwethers including Procter & Gamble, Fastenal and 3M have flagged the challenges.

Sector-Specific Price Adjustments

Andy Jassy, CEO of retail giant Amazon.com, told CNBC on the sidelines of the World Economic Forum in Davos, Switzerland the company was seeing prices tick up on its e-commerce platform as sellers have run down inventories they brought in to front-run tariffs.

Retail and Consumer Goods

Numerous companies with global footprints report results in the coming week, including General Motors, Caterpillar, Colgate-Palmolive, and packaged goods company Kimberly-Clark.

Industrial Supplies

While broader consumer spending has held up, buyers have been judicious, often looking for value items, particularly lower- and middle-income earners.

"While some are less price-sensitive than others, most consumers are still mad about the level of current prices and won't take kindly to further hikes," said Brian Jacobsen, chief economic strategist at Annex Wealth Management.

'SURGICAL' PRICE INCREASES

More than 100 S&P 500 companies will report next week, according to LSEG data.

Tariff-related price increases are expected to materialize this year for gardening and farm equipment seller Tractor Supply, according to a note by brokerage Telsey Advisory Group. 

Tractor Supply reports results on Thursday, and executives have said consumers over the past year have been buying with value in mind and that it would be "surgical" with price increases.

Levi Strauss reports holiday-quarter results on Wednesday. The company said in October that tariffs would cut its margins by 0.7%, up from a previous 0.5% estimate. While Levi Strauss has raised some prices while trying to diversify its supply chain, the company also warned of a softer consumer environment.

Harvard University professors Alberto Cavallo, Paola Llamas and Franco Vazquez have been tracking the price of roughly 360,000 goods, from carpets to coffee, at major online and brick-and-mortar retailers in the United States. 

They estimate that as of year-end, domestic goods cost about 4.3 percentage points more than would have been expected based on the pre-tariff regime, while imported goods are about 5.8 percentage points more expensive.

Some companies, like spice maker McCormick & Co, are raising prices, after tariff costs rose more than expected in the fourth quarter. 

"Approximately 50% of the incremental tariffs on McCormick items remain in place, and we continue to face related inflationary pressures," said CEO Brendan Foley. McCormick's gross profit margins were down about 130 basis points from the year-earlier period.

Consumer goods bellwether Procter & Gamble has raised some prices in the U.S., its biggest market, by 2% to 2.5% to offset tariffs and weak sales. The company reported a fifth straight quarterly drop in margins last week. 

HOW CONSUMERS FEEL

Industrial supplies distributor Fastenal also said tariffs inflated prices and hit demand. Fastenal's CFO Max Tunnicliff said the company would "go for more pricing" in 2026, but that would depend on its input costs and customer behavior.

As of mid-November, the effective tariff rate on U.S. consumers when accounting for product substitution was 14.4%, highest in 85 years, according to the Yale Budget Lab. 

The current tariff regime could be interrupted if the U.S. Supreme Court in February rules against President Donald Trump's use of IEEPA (International Emergency Economic Powers Act) to implement existing tariffs - possibly opening the door to massive refunds for companies that paid duties under Trump's emergency‑powers regime.

However, that process could play out over years, and in the meantime, the White House plans on using other tariff authority to keep the import duties in place.

"Everyone has been working through the last eight months on how to navigate the new trade environment," said Larry Culp, CEO of General Electric. 

(Reporting by Juveria Tabassum in Bengaluru; additional reporting by Rajesh Kumar Singh in Chicago; editing by David Gaffen and Tasim Zahid)