How Hasbro became the trade war's biggest loser: Morning Brief

Myles Udland
Markets Reporter

Wednesday, October 23, 2019

Threats are worse than the real thing

President Donald Trump's trade wars have created a number of headaches for corporate America, and the global economy.

Some economists estimate that a quarter of the slowdown in global growth over the last few years can be attributed to the trade fight. And on a daily basis, headlines related to a potential trade deal are still the biggest mover of the stock market.

But on a company-specific basis, it is hard to find many companies being hit in a wider variety of ways than toymaker Hasbro (HAS).

On Tuesday, Hasbro reported earnings that missed estimates, with the company laying the blame on tariffs. In response, shares on Tuesday plunged by as much as 15%.

Hasbro CEO Brian Goldner called the current environment “very choppy” on the company’s earnings call on Tuesday morning. Goldner added that “retailer order patterns have changed in response to potential tariffs, and our supply chain is being pushed to meet high levels of demand in condensed periods of time.”

The mere threat of tariffs has been enough for Hasbro's customers to change their behavior, and for the company's bottom line to get hit. In other words, Hasbro doesn't even need to pay higher taxes on imported or exported goods to feel the pain of the trade war.

That merely anticipating new duties has hurt Hasbro's outlook so dramatically makes it the trade war's biggest loser right now.

Almost every executive team can find a way to massage any one quarter or year's numbers to mitigate the impact of a new cost. It's when a potential futures costs continue to remain— well, potential — that companies really have problems, and investors start to get antsy.

And this news makes Hasbro stand out even more on a day when companies like Procter & Gamble (PG) and Kimberly-Clark (KMB) offered results that hardly mentioned the expected impact from the trade fight.

(AUSTRALIA OUT) Monopoly board game with a piece stopped on 'Tax', 6 April 1998. AFR Picture by JESSICA HROMAS (Photo by Fairfax Media via Getty Images via Getty Images)

Of course, Hasbro is still dealing with massive industry-specific disruption, as sales of toys move online at an accelerating rate following the collapse of Toys R Us. Comparing it to the fortunes of P&G and Kimberly Clark is not entirely fair to either party.

But as we continue to see third quarter results roll in, and investors try to make sense of how companies are handling the trade fight, Hasbro gives us a sense of the biggest negative from Trump's trade war. Which is that it's not really about the tariffs themselves, but about what the threat of these tariffs can mean to companies.

“The threat of, and the implementation of tariffs in certain instances, impacted our shipments, and our ability to fully meet demand,” Goldner said Tuesday.

“During Q3 alone we saw multiple different dates for the enactment of list 4 tariffs come and be delayed, now scheduled for December 15, and yet the prospect had our retailers cancel major direct import program orders and rewrite many of these orders as domestic shipments,” the CEO added.

As Trump changes his mind on trade so too are companies changing their plans. But each zig and zag in the trade war’s drama leaves someone holding the bag.

And this quarter, it was Hasbro.

By Myles Udland, reporter and co-anchor of The Final Round. Follow him @MylesUdland

What to watch today

Economy

  • 7 a.m. ET: MBA Mortgage Applications, week ended October 18 (0.5% prior)

  • 9 a.m. ET: FHFA House Price Index month-on-month, August (0.4% prior)

Earnings

Pre-market

  • 7:30 a.m. ET: Caterpillar (CAT) is expected to report adjusted earnings of $2.87 per share on $13.41 billion in revenue

  • 7:30 a.m. ET: Boeing (BA) is expected to report adjusted earnings of $2.17 per share on $19.65 billion in revenue

  • Other notable reports: Anthem (ANTM), Eli Lilly (LLY), Vertex Pharma (VRTX), Thermo Fisher (TMO), Freeport-McMoran (FCX), Waste Management (WM),

Post-market

  • 4:05 p.m. ET: Microsoft (MSFT) is expected to report adjusted earnings of $1.24 per share on $32.22 billion in revenue

  • 4:05 p.m. ET: Tesla (TSLA) is expected to report an adjusted earnings loss of 24 cents per share on $6.45 billion in revenue

  • 4:15 p.m. ET: Ford (F) is expected to report adjusted earnings of 26 cents per share on $34.03 billion in revenue

  • 4:15 p.m. ET: PayPal (PYPL) is expected to report adjusted earnings of 53 cents per share on $4.35 billion in revenue

  • Other notable reports: Las Vegas Sands (LVS), O’Reilly (ORLY), eBay (EBAY), Xilinx (XLNX)

Read more

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