US Machinery_ Tariffs 2.0. Mon Dec 23 2024

Summary of Key Points from the Conference Call Industry Overview - The conference call discusses the U.S. machinery industry, focusing on various companies and their exposure to tariffs and supply chain dynamics. Company-Specific Insights Deere & Co. (DE) - Less than 5% of U.S. sales are manufactured in Mexico, with over 75% of products sold in the U.S. assembled domestically - The Agriculture and Turf division is a net exporter, positioning the company well against potential trade policy changes [2] CNH Industrial (CNH) - Manufactures large equipment in the U.S. and relies on global sourcing, particularly from China and Europe - Plans to manage tariff impacts by passing costs along, but is concerned about potential retaliatory measures from China affecting U.S. farmers [2] AGCO Corporation (AGCO) - 40% of North American sales are produced outside the U.S., with 25-30% from Europe - Tariffs involving Mexico and Canada are not expected to significantly impact AGCO, but European tariffs could necessitate pricing adjustments [2] PACCAR Inc. (PCAR) - Majority of production is local for local, with manufacturing facilities in the U.S. for Kenworth and Peterbilt - The Mexico facility primarily serves Mexico and Central/South America, with limited exposure to U.S. markets [2] Cummins Inc. (CMI) - Operates several plants in Mexico, with some under the Maquiladora structure, affecting tariff impacts - Key facilities include a foundry and a transmission plant, with no significant exposure to Canada [11] Allison Transmission Holdings (ALSN) - Supply chain is largely U.S.-based, with no facilities in Mexico, but suppliers may source components from Mexico [11] Atmus Filtration Technologies (ATMU) - Predominantly manufactures 'in region, for region,' with a facility in Mexico for aftermarket sales - Management is preparing for potential tariffs but believes labor arbitrage may still favor production in Mexico [11] Illinois Tool Works (ITW) - Limited exposure due to lack of low-cost labor structure, prepared to adjust prices to offset future impacts [11] ESAB Corporation (ESAB) - China accounts for only 5% of total revenue, with a focus on high-tier markets - Observing a shift in manufacturing from China to Southeast Asia, particularly India [11] Oshkosh Corporation (OSK) - Imports scissor lifts from Mexico, with flexibility to shift production to the U.S. if tariffs become burdensome [11] Terex Corporation (TEX) - Does not import machines from China, with tariff exposure mainly linked to manufacturing in Mexico [12] Middleby Corporation (MIDD) - Minimal tariff exposure with less than $100 million in COGS attributed to China, focusing on domestic manufacturing [12] Kennametal Inc. (KMT) - No manufacturing base in Mexico but has revenue exposure; potential retaliatory tariffs could impact sourcing [12] United Rentals, Inc. (URI) - Most purchases are domestically produced, focusing on maintaining competitive pricing amidst potential tariff impacts [12] Herc Holdings, Inc. (HRI) - Majority of fleet sourced from domestic manufacturers, maintaining multiple suppliers for negotiation leverage [12] Custom Truck One Source (CTOS) - Faces significant tariff implications on chassis sourced from Mexico and Canada, monitoring potential changes [12] Tariff Implications - Proposed tariffs set to take effect on January 20, 2025, include an additional 10% tariff on Chinese goods and a 25% tariff on products from Mexico and Canada - Most companies have tiered suppliers in these countries, which may lead to inflationary cost pressures that need to be managed through pricing or supply chain diversification [8] Conclusion - The U.S. machinery industry is navigating complex supply chain dynamics and potential tariff impacts, with companies preparing to adjust strategies to mitigate risks and maintain competitiveness in the market [8][11][12]