Surprisingly Positive Tariffs

By Samuel Rines

Key Takeaways

• With August tariff extensions looming, several major companies are now guiding for reduced tariff impacts, a shift that has helped boost market sentiment this earnings season.
• Firms like Johnson & Johnson and 3M have moved from worst-case tariff scenarios to improved earnings guidance, suggesting earlier fears were overstated.
• As pricing strategies and supply chain adaptations take hold, investors should watch for potential upside surprises in companies that previously priced in heavy tariff damage.

Few Sentence Take (FaST): The August tariff extension is two weeks away. But earnings season is telling us a few important things about the current state of affairs. Many of the companies that provided guidance for tariff impacts in the past are guiding away some of the impact in the future. Markets like increased guidance.

Many people are fans of having four seasons. This author is a fan of four seasons as well—earnings seasons. The informational content is simply far too valuable to anyone who wants to know what the macro is likely to do.

First, it is worthwhile to highlight some takeaways from the previous weeks. The tariff game plan for corporate America appears to be a variation of:

• Gain clarity on the effects of tariffs across revenues and margins.
• Mitigate through supply chain actions, promotions (pricing lite) and pricing actions (explicit price increases).
• Supply chain actions are underway, but the promotional cutting and price hiking are coming.

That is useful for understanding the way some of the economic data is likely to play out over the next several months. There will be whipsaws in the data—particularly goods inflation. But that is only part of the overall equation of understanding the tariff impacts and ripples for markets.

If you have a "full price" item that is $50, you might sell it, on average, for $45 due to discounting the product by 10%. Cutting discounts from 10% to 5% leads to an average selling price that increases by 5.6%. Combining lower discounts with an increase in the "full price" sticker, and that gets to some interesting top-line characteristics, even losing a bit of volume.

That is the story to watch over the next several quarters. Some will execute. Some will not.

Then there are the companies with "too much tariff" priced in. And those are the ones to watch. Again, there is a particular cadence to the companies:

• Guided for the worst of all possible worlds
• Found out it was not quite that bad after various tariff announcements and internal adjustments.
• Are now guiding some of the impact back to the bottom line.

Johnson & Johnson is one of the better examples.

That is a 50% decrease in the tariffs' impact for the company. And it is not alone.

There is also 3M. Guiding down the tariff impact from $0.20 to $0.40 of net impact to $0.10 might sound trivial. But the interaction of expecting a larger impact and preparing for it led 3M to guide earnings higher than its pre-tariff (January) expectation.

This is not going to be the case for everyone. But it will be the case for many who guided to the worst of all possible worlds. For some, the dark night of earnings is over. And that could lead to some interesting dynamics through the remainder of earnings season.

A few of the companies to watch in the coming weeks for clarity are PG, DE and KMB:

and

and

There are plenty of companies with a tariff overhang. For some, that hangover will be warranted. But others will emerge on the other side with better outcomes. It may be surprising to see who the winners are at the end of earnings season. With tariff impacts being mitigated and pricing plans to come, this earnings season could be surprisingly positive.

¹ Source: Johnson & Johnson earnings call, 7/18/25 (emphasis added).

² Source: Proctor & Gamble earnings call, 4/24/25 (emphasis added).

³ Source: Deere & Company earnings call, 5/15/25 (emphasis added).

⁴ Source: Kimberly-Clark earnings call, 4/22/25 (emphasis added).