Given the on-again and off-again nature of United States President Donald Trump’s tariffs, it’s taken around a month into U.S. reporting season for major listed U.S. stocks to digest and disclose what they see as the likely impact on future earnings.
However, even before the pending tariff hit on stocks' future bottom-line, the percentage of S&P 500 companies reporting positive earnings surprises was already below recent averages.
Weaker corporate earnings
Of the 36% of companies in the S&P 500 that reported actual results for Q1 2025 by late April, 73% reported earnings per share (EPS) above estimates - below the 5-year average of 77% and below the 10-year average of 75%.
Based on the U.S. stocks that have delivered their quarterly results to date, six of the eleven sectors are reporting year-on-year growth, including the Health Care, Communications Services, IT, and Utilities sectors.
On the flipside, five sectors report a year-on-year decline in earnings, with the Energy sector leading the charge.
Unsurprisingly, as the U.S. reporting season has unfolded, forecasters' expectations around U.S. corporate earnings have soured somewhat.
For the first quarter of 2025, analysts now expect 6.7% growth for the S&P 500 company. This compares to around 11% when Trump was first elected back in November.
Reporting season reset
Signalling the ominous half-way mark in U.S. reporting season over night was Ford's 1Q warts and all update.
If the tone of Ford's results is any proxy, the second half of the 1Q reporting season will – based on a more accurate assessment of the tariff impact – paint a more grim earnings outlook than stocks that have already reported.
While Ford’s numbers were far from pretty, it’s management's commentary that weighed more heavily on the market yesterday.
First the numbers: Ford’s first-quarter net income dropped 64% from a year ago to US$471 million, with management citing production disruptions and the cost of launching redesigned SUVs.
Overall, revenue declined 5% to US$40.7 billion, while earnings per share fell to 14 cents, down from 49 cents a year ago.
However, this was better than the 4 cent average loss expected by analysts.
The Michigan carmaker told the market it reduced tariff costs during the first quarter by nearly 35% through changes such as shipping vehicles and parts from Mexico to Canada on bonded trucks, which do not need to pay custom duties at the border.
Numbers aside, Ford's earnings outlook made the market sit up.
Given that General Motors lowered its guidance last week - citing that tariffs could cost up to US$5 billion - investors had every right to expect the worst from Ford’s quarterly update.
Earnings outlook
With tariffs underscoring Ford’s outlook, the carmaker warned the market to expect a US$1.5 billion reduction in adjusted earnings before interest and taxes in 2025.
What may also set a precedent for the remainder of the U.S. reporting season, Ford reverted to covid-mode when markets were too unpredictable for companies to provide realistic earnings guidance.
Therefore, Ford has withdrawn its expected operating profit forecast of $7 billion to $8.5 billion for 2025.
Ford's seven reasons for withdrawing its forecast were A) potential for industry-wide supply chain disruption, B) the risk that levies may increase, and C) possible retaliation from other countries.
Overall, the company puts the total tariff impact at around US$2.5 billion, with US$1 billion offset through actions like bonding transportation.
Surprisingly, shares in Ford only fell by around 2.4% following the results announced overnight.
Will other stocks follow suit?
In light of Ford’s all-betts-are-off approach to earnings guidance, investors will watch closely to see if U.S. stocks yet to report will take their cue from Ford and choose not to provide forward guidance.
Meanwhile, the global car industry is struggling to determine the impact of Trump’s constantly changing tariffs on vehicles and parts imported into the U.S.
Last week the Trump administration said parts imported from China would be exempted. Carmakers would also be spared from levies on steel and aluminium.
