Earlier we reported that according to Goldman, virtually all of its investing clients are “anxious” and/or unsettled” due to rising confusion over Trump policies. As Goldman explained, “‘Unsettled’ is our best description of fund managers’ mindset as the new administration takes office. During an extensive series of client meetings in the US, Europe and Asia, it became apparent that investors are confused about how to best position portfolios under a Trump presidency… Policy uncertainty was a topic of concern raised in every client meeting. While we expect corporate tax reform legislation will be enacted in 2017, the magnitude of cuts and offsetting revenue proposals are unknown.”
Now, we can confirm that based on transcripts from companies reporting Q4 earnings, confusion – and hope – over Trump and his policies has spread to corporate America.
As FactSet analyst John Butters points out, while the majority of S&P 500 companies will report earnings results for Q4 2016 over the next few weeks, approximately 8% of the companies in the index (42 companies) have already reported earnings results for the fourth quarter (through Wednesday).
He then asks if “companies in the S&P 500 been commenting on government policies that may change under the Trump administration during their earnings conference calls for the fourth quarter?” To answer this question, FactSet searched for the terms “Trump” and “administration” in the conference call transcripts of the 42 S&P 500 companies that have conducted fourth quarter earnings conference calls through January 18 to see how many companies discussed these terms. FactSet then looked to see if the company cited or discussed a policy topic in conjunction with the citation of “Trump” or “administration.” The results are shown below.
Of the 42 S&P 500 companies, 27 cited the term “Trump” or “administration” during their Q4 earnings calls. The term “administration” was only counted if it was used to reference the Trump administration.
In terms of government policies in conjunction with the new administration, tax policy was cited or discussed by the highest number of S&P 500 companies at 11. Six of these 11 companies stated that if taxes were lowered, it would benefit their clients or themselves. Companies that cited or discussed a potential border tariff or tax were counted under “Trade Policy” and not “Tax Policy” in the chart. Numbers do not total to 27 as some companies discussed multiples policy topics, while others did not discuss any specific policy topics.
Here is a selection of Q4 call excerpts courtesy of FactSet:
“I think when you say indirect and direct, you mean direct, obviously, we’ve been a relatively high taxpayer. And so to the extent to which tax rates come down, we’re a beneficiary. But obviously, changes in tax policy can be a huge catalyst for how all of our clients think about deploying their capital, strategic decisions.” –Goldman Sachs (Jan. 18)
“Well, I just want to echo what you just said that we are starting to have conversations with clients that are indicating they are more optimistic business owners around possibilities of increased economic growth and maybe some tax relief or other things that might come with the new administration yet to be determined.” –Comerica (Jan. 17)
“And then the other item that I mentioned is the tax reform that’s being discussed. I see Delta certainly being a beneficiary of that, though it’s hard to speculate as to the form it will take, given its very early.” –Delta Air Lines (Jan. 12)
“Well, certainly, we’ve seen a lot of positive sentiment. And at this point in time, it’s just sentiment. And so we’ve got a ways to go before we see anything impactful. But having said that, look, if we see lower corporate income tax rates that will be certainly beneficial for us because we’re mostly a U.S-based company.” –Cintas (Dec. 22)
“We haven’t started doing modeling at this point because at that point, the benefit – okay, so that’s coupled with a bigger discussion about whether corporate tax rates go down. If that happens then, even if we face some drag from personal income taxes, the corporate tax impact simply dwarfs everything else so that we’d look at both. So if tax reform occurs, it’s pretty obvious that we would be a pretty significant beneficiary. By significant, I mean very significant. So we’re waiting to hear like everyone else is waiting to hear.” –Paychex (Dec. 21)
“The bigger issue for all of you to look at longer term for us is the features that are in the GOP blueprint and President-elect Trump’s plans that we like a lot, and those include materially lowering the tax rate, the effective territorial treatment of foreign earnings, and current expensing of CapEx. We think that will positively impact our top line through stronger economic growth and, of course, the bottom line potentially in a very big way through the lower tax rate.” –FedEx (Dec. 20)
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