Campbell Soup got some free publicity when Commerce Secretary Wilbur Ross held aloft a can of chicken noodle during a March 2 television interview. The can has just 2.6 cents worth of steel, a small fraction of the $1.99 he paid at 7-Eleven, Ross explained. This was meant as comfort food for investors worried that newly announced tariffs of 25% on steel and 10% on aluminum will dent consumer buying power.
But the pinch to profits for some metal-hungry manufacturers could be more significant. Manitowoc (ticker: MTW), a Wisconsin crane maker, could lose 25% of its earnings per share next year if it isn’t able to pass along a rise in steel prices to customers, notes JPMorgan analyst Ann Duignan. For heavy-equipment titan Caterpillar (CAT), the potential hit is just 3%. The difference between the two has less to do with steel usage than with prosperity. Cat’s much larger earnings base can better absorb the costs.
Other machine makers with modest earnings, and thus elevated risk of higher metals prices, include truck makers Oshkosh (OSK) and Navistar International (NAV), with 15% of next year’s earnings at risk, according to Duignan, and another crane maker, Terex (TEX), with 11% at risk. Similarly, Goldman Sachs strategist David Kostin pointed out last week that a rise in steel prices could cost General Motors (GM) and Ford Motor (F) an extra $1 billion each per year. That’s a manageable enough figure compared with more than $100 billion a year in manufacturing and materials costs for each, but it would take a bigger bite out of operating profits, estimated at $11.9 billion this year for GM and $6.9 billion for Ford.
The risk of retaliation is more difficult to quantify. Al Root, a steel engineer turned industry analyst, has sorted U.S. manufacturers into risk quintiles based on exposure to higher metals prices and the percentage of revenue they get from non-U.S. customers.