Impact of Tariffs on Business Strategy and Operations
Hyster-Yale is actively managing tariff impacts through monthly price adjustments based on actual product costs, reflecting a flexible pricing strategy to offset tariff-related cost increases.
The company has built in a 10-15% tariff impact into its outlook, with ongoing negotiations and adjustments, especially in China and India where tariffs remain high.
Tariffs have caused a $10 million negative impact on product margins in Q2, prompting proactive measures such as global sourcing and cost management to mitigate effects.
Management expects tariffs to negatively affect financial results in the second half of 2025 despite mitigation efforts, with some uncertainty about the timing and magnitude of tariff stabilization.
Management highlighted the ongoing 25% automotive tariffs, which have significantly influenced import patterns and demand, especially in the tire industry.
The surge in tire imports into the U.S. following the early May tariff deadline has elevated channel inventories and weighed on local tire manufacturing, with expectations of normalization in June data.
Tariffs on India, including potential 15-25% rates, are expected to impact carbon black imports, making them less economically viable and influencing global supply dynamics.
Negotiations for tariffs in India are underway for 2026, with early customer actions driven by elevated tire imports and optimistic outlook for resolution.
European markets are under investigation for Chinese tire dumping, which could alter competitive dynamics and import pressures in the region.
Management anticipates that the new tariff paradigm could lead to a demand ramp-up in 2026, despite current uncertainties and cautious customer behavior.
Frank Bozich highlighted that trade uncertainty, especially after April tariff announcements in the U.S., led to high order cancellations early in Q2, dampening seasonal demand.
Management noted that cancellations decreased significantly during the quarter, but the overall demand remained weaker than expected due to geopolitical and trade risks.
The company believes that resolution of trade uncertainties could unlock demand, with potential demand recovery driven by improved trade policies and geopolitical stability.
Tariff-Related Inventory Valuation Headwinds and Price/Cos Impact
The company highlighted tariff-related LIFO inventory valuation headwinds impacting gross margins, with an estimated 80 basis points of the 50 basis points gross margin decline for the year attributable to LIFO.
Management emphasized that these impacts are mostly transitory and expect gross margins to recover over time as they work back toward their price-cost neutrality target.
The September pricing cycle will include further increases on products directly imported by Grainger, expected to add 2% to 2.5% net annualized price inflation, contributing to a total of approximately 1% price increase for 2025.
Dafinchi
