Stocks tumbled Monday following escalating trade threats between the U.S. and China. The Dow Jones Industrial Average (DJINDICES: ^DJI) was down by almost 500 points during the session, but recovered somewhat in the final hour. The S&P 500 (SNPINDEX: ^GSPC) lost a similar percentage.
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Data source: Yahoo! Finance.
Technology shares were hit hard today, with the Technology Select Sector SPDR ETF (NYSEMKT: XLK) sinking 2.1%. Utilities moved higher, though; the Utilities Select SPDR ETF (NYSEMKT: XLU) rose 1.7%.
As for individual stocks, Harley-Davidson (NYSE: HOG) fell on news of the impact of tariffs, and Carnival (NYSE: CCL) dropped after issuing a weak outlook.
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Harley shifting production offshore in response to tariffs
Shares of Harley-Davidson fell 6% after the company submitted a filing to the SEC outlining the damage the European retaliatory tariffs are having on its business, and announcing it will shift some production from the U.S. to Europe.
Harley said in the filing that tariffs imposed by the European Union on its motorcycles, which went into effect June 22 in retaliation for U.S. levies on steel and aluminum, have increased from 6% to 31% and will add $2,200 to the average motorcycle. The company believes that it can’t pass along those costs to buyers without having an “immediate and lasting detrimental impact” to its business in the region and affecting the sustainability of its dealers’ businesses. It will therefore bear the costs of the tariffs itself, which will amount to $30 million to $45 million in additional cost in 2018 and $90 million to $100 million on an annual basis.
For the longer term, Harley-Davidson will cope with the tariffs by shifting production from the U.S. to its plants in Europe, with the production ramp expected to take nine to 18 months.
Harley’s European business, which grew 8.1% and added 1.3% in market share in the latest quarter, is essential for the struggling company. Tariffs are a double whammy for Harley, with the steel and aluminum levies expected to add an additional $15 million to $20 million in material costs, so the tariff action by the EU is hastening the company’s steps toward move production offshore.
Carnival cruises to a strong quarter, but warns of rising fuel costs
Carnival stock fell 7.9% after the company reported second-quarter results that beat expectations, but lowered its guidance for full-year profits due to rising fuel costs and unfavorable currency exchange rates. Revenue increased 10.4% to $4.36 billion and adjusted earnings per share jumped 30.8% to $0.68. Analysts were expecting the company to earn $0.60 per share on revenue of $4.32 billion.
Net revenue yield grew 4.8% in constant currency, which was well above guidance of 2.5% to 3.5%. Net cruise costs per available lower berth day (ALBD), excluding fuel, increased 3.6% in constant currency, which also beat the company’s forecast of a 4% to 5% rise.
Looking forward, booking trends led Carnival to increase guidance for full-year revenue yields from 2.5% to 3%, but changes in fuel prices and exchange rates are expected to decrease EPS by $0.19 compared to guidance given in March. The company now expects to earn between $4.15 and $4.25, compared with Wall Street expectations of $4.35. Third-quarter EPS guidance is $2.25 to $2.29, 8% below the analyst consensus at the midpoint.
Carnival’s CEO was upbeat after its reasonably strong quarter, saying it was on track to delivering a double-digit return on invested capital this year, and pointed to a recent raise in the dividend, which now pays a 3.4% yield. Investors were more focused on the pressure on the company’s bottom line today, though.
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