The costs of manufacturing foods and beverages packaged in cans made from imported aluminum or steel are projected to increase after tariffs imposed by the Trump administration kick in June 1. The move placed a 25% tariff on imported steel and 10% on imported aluminum products from Canada, Mexico and the European Union, according to The Washington Post.
U.S. soda and beer manufacturers using imported aluminum — including Dr Pepper Snapple, PepsiCo, Coca-Cola, Constellation Brands, Molson Coors and Heineken — wrote to President Trump in February to say their manufacturing costs were likely to dramatically increase if the tariffs were imposed. They estimated a 20% import duty would cost them $512.5 million and a 30% one would amount to $768.8 million.
The tariffs are also expected to increase the retail price of American canned food and beverage products for consumers in Canada, Mexico and the EU, but it isn't clear yet how much. Canada, Mexico and the EU have already announced retaliatory tariffs targeted at U.S. corn, bourbon, maple syrup, pizza, pork, sausages, apples, grapes, cranberries, various cheeses and other products.
As trade disputes with China, Mexico, Canada and the EU have ramped up in recent months, manufacturers' earnings reports and calls with analysts have reflected increasing concerns about the financial hit that these tariffs could bring. The problems come at a particularly bad time for Campbell, whose CEO just abruptly retired amid slumping sales and projected profit declines for the rest of this year.
"The issue is primarily one of cost inflation. And we're seeing and expecting an acceleration on the rate of inflation across a number of ingredient and packaging items," Chief Financial Officer Anthony DiSilvestro said during a May 18 earnings call with analysts. "For example, we expect double-digit increases on steel and aluminum. A lot of that [is] driven — or all of it's driven by the impact of anticipated tariffs."
Campbell Soup's shares were already tumbling on Thursday, posting a 2.58% decline before the tariff even went into effect. Other food and beverage companies feeling the pain as Thursday's markets closed were Tyson (-3.92%); Hormel (-3.44%); Molson Coors (-1.12%); PepsiCo (-0.65%); and Coca-Cola (-0.43%). These companies' reliance on cans exposes them more to the tariffs, according to Credit Suisse analysts quoted by CNBC. Other U.S. firms likely to feel tariff-related pain are Kraft Heinz, General Mills and Hershey.
While internal productivity programs and other cost-cutting initiatives across the board may help mitigate the expense, food and beverage manufacturers using imported steel and aluminum may have to consider consumer price increases or shifting to different types of packaging. But glass, cardboard, aseptic containers and other packaging options have their own costs and production considerations, so a lot of financial analysis is likely going on as companies try to figure out the best and most cost-effective way to proceed.
U.S. manufacturers could be impacted even further by the food and beverage products on which Mexico, Canada and the EU intend to slap retaliatory tariffs, which could go into effect later this month. That will place U.S. bourbon distillers, pork producers, fresh produce growers and maple syrup farms, among many others, at a distinct disadvantage. On the plus side, U.S. consumers may see lower prices for some items if companies opt to keep more of their products at home rather than pay tariffs overseas.