This Week in Earnings – Q4'24

Pending Tariffs Resulting in ‘Choppiness in Decision Making’ for Some; Executives Tout Lessons Learned from Trump 1.0 and Operational Flexibility to ‘React to Whatever Happens’; Price Increases Likely on the Way

• J.B. Hunt ($17.5B, Integrated Freight & Logistics): “We believe most of our customers are taking more of a wait and see approach to see how potential tariffs might influence future purchasing and business decisions.”
• AZZ ($2.7B, Building Products): “We’ve been able to perform, particularly in the third quarter, ahead of the markets. But generally, the markets are okay. I think there’s some hesitation. We’ve seen projects pending, what’s going to happen with tariffs, steel availability, things like that. I don’t believe those are significant hurdles going forward as we get into 2025. But I do think it’s created a little bit of choppiness in decision making on some projects, and that’s generally across markets.”
• Fastenal ($43.6B, Industrial Distribution): “We’ve always been excellent in supply chain, but we had to get good at tariffs back in the 2018, 2017 timeframe. A lot of times, we focus on tariffs that come into the U.S. But tariffs are not something that are unique to the U.S. We’ve been going through tariffs coming into Mexico for the last year-and-a-half. We’ve had tariffs as it relates to our Canadian market or other non-North American So that knife isn’t dull in our ability to be surgical. What’s really important is our ability to give visibility to our customers and allow them to make better decisions, because then we’re special to them. We are well poised to communicate and react to whatever happens, and it’s going to be an unpredictable world starting here on January 20. Frankly, it’s been an unpredictable world over the last 10 years, so that’s not new. It’s just maybe the intensity of how quickly that happens might change.”
• Union Pacific Corp ($143.5B, Ground Transportation): “We have the capability of Union Pacific to react to anything that’s thrown at us. Good strong balance sheet, real good, focused marketing team, operations that are looking to be more efficient. If we get tariffs, but we also get the regulatory changes and we get the tax changes that were talked about by the President, with how depreciation is going to work on capital and how our corporate tax rate works, that could be a lot of positive. Now I don’t expect any of that. That’s not what we plan. We plan for the worst. If something really bad happens, make sure that we are in a good position to handle that. So, I think that with the puts and takes of where our business is, we’ll deal with it, and we’re waiting to see what actually happens. I’m hoping that it’s a negotiating position by the President, and because I don’t think anybody, the consumers in the US would love to have increase in prices because of a dispute unless there’s some strategic reason that the President needs to do that for security of the country.”
• Textron ($14.5B, Aerospace & Defense): “[Regarding the new administration], on the positive side, we talked about our expectations for the overall business climate – less regulation, probably a better tax resolution. The tariff [issue] is very much a wild card. We don’t know the specifics. Clearly, we have operations in Mexico. We have a pretty significant operation in Canada. It’s an unknown. So we’re not rotating position one way or the other. We’ve got to see how this plays out. And again, I think a lot of this is around negotiations and working on how to deal with the free trade agreements on a go-forward basis.”
• MSC Industrial Direct ($4.6B, Trading Companies & Distributors): “First of all, there’s still a lot of uncertainty. Something is likely coming, but we don’t know how much, and we don’t know when. What we wanted to get across is we’re prepared. We’ve dusted off the playbook. Our team is ready to go. We’ll see how it plays out, but more or less, we would follow a similar playbook. What we are trying to convey is that we will move on price as warranted. And remember, if I think back to last time around, there’s two inflationary effects from the tariff situation, the direct and then the knock-on effect. The direct effect is any imported products going up. That’s where you’re referencing surcharges as the more likely means. The secondary effect is more broad-based industry-wide inflation. But certainly, you could imagine tariffs are going to influence list price changes from our manufacturers. And that would trigger more broad-based pricing actions.”
• Acuity Brands ($10.4B, Electrical Equipment): “[As for tariffs], there’s been a lot of talk and not a whole lot of action. For ourselves, for example, we’ve made very small, targeted changes in our purchasing, which are kind of ‘no regrets’ decisions about what might potentially happen in the future. From a customer perspective, we’ve had a lot of customers asking us if we’re going to increase prices, and when, because of tariffs, and then that conversation sort of dies down. The expectation from our customers is that we will react accordingly when that happens and we’ve set the expectation with them that nothing’s happened, so there is nothing to talk about. And if something does happen, we will be prepared and we will act accordingly.”