What’s worrying companies the most on their earnings conference calls


General Mills said its operating profit increased by 12 percent, but that “currency-driven inflation” on products in the U.K. offset some of the benefits. IHS Markit estimated a .3 percentage point hit from forex, while Conagra, like several other companies, noted that a rising Mexican peso created headwinds.

On the tariff side, FedEx said the duties hit “a small portion” of China volume and “the uncertainty surrounding the issue is not helping and thus has a broader impact on the market.” Industrial supplier Fastenal said the tariffs are “directly impacting the North American supply chain for our customers.” But Costco said the issue is “a small net negative” and “we can weather it better than others.”

Despite the pressure from tariffs and currency, as well as higher interest rates, earnings are expected to be stellar.

In addition to the strong bottom-line gain, FactSet expects a net profit margin increase of 11.6 percent from a year earlier, tied for the second-best since the data firm began tracking earnings 10 years ago.

A big offset for the other pressures is benefits from the corporate tax reduction passed at the end of 2017.

“The reduction in the corporate tax rate due to the new tax law is likely a significant factor, as the lower tax rate has boosted earnings for companies in the index for the quarter,” Butters wrote. “It appears the lower tax rate is more than offsetting the impact of rising costs, resulting in a near record-level net profit margin for the index for the third quarter.”

Net profit margin is expected to stay around current levels for at least the next several quarters.

Earnings season accelerates this week, with 55 more S&P 500 companies reporting, a list that includes seven of the 30 Dow Jones Industrial Average components.

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