Trade Wars? How Lockheed, Whirlpool, Others Gear Up

Quarterly earnings releases often grab the attention of a firm’s investors, but this week employees, customers and all the other stakeholders of aerospace, auto, defense and other manufacturers are focusing on what their firms are saying this week.

The escalating rhetoric over trade tariffs—and in some cases actual levies—have many stakeholders anxious about what could happen next and are looking to their firms’ leaders to get some insight. “The broader concern is if the political rhetoric leads to trade protectionism, and global demand slows further,” says Ron Malachuk, a principal in Korn Ferry’s Global Industrials Market practice.

The wider the divide on trade between the U.S. and the rest of the world becomes, the more nervous stakeholders can get. President on Tuesday morning tweeted that “Tariffs are the greatest!” and the United States is a “piggy bank that’s being robbed.” Tensions eased somewhat on Wednesday after the U.S. and European Union worked to head off a major escalation, but the U.S. still has strained trade relations with other major trading partners.

But, at least so far, the trade war’s impact on profits has been mixed. For instance, U.S. motorcycle manufacturer Harley-Davidson beat analyst estimates on revenue and profit, but warned that EU tariffs would squeeze margins. (Harley was criticized by the Trump administration last month after the firm said it planned to shift some manufacturing operations outside of the U.S. because of higher tariffs.) By contrast, Whirlpool reported weaker-than-expected quarterly results, attributing part of the miss to rising raw materials costs. Defense contractor Lockheed Martin beat revenue and profit estimates, but listed several risk factors that could negatively impact future results, including “economic, industry, business, and political conditions, including their effect on government policy (including trade policy and sanctions).”

Telling stakeholders effectively that “a storm is coming” is one of the most difficult challenges leaders face, experts say. Say the wrong thing and the firm’s stock price could fall or employees and customers can get scared. Worse, look panicked in front of employees and demotivation and disengagement could soon follow. Dr. Karl Albrecht, in his 1979 book “Stress and the Manager,” defined this phenomenon as anticipatory stress. This kind of stress is caused by worry over something in the future and is often focused around a specific event;  manufacturing or industrial worker afraid of losing their job because of an all-out trade war would meet the criteria, for instance.

Kevin Cashman, Korn Ferry’s global leader for CEO and Executive Development, says leaders in this situation must communicate with both candor and clarity. “Do not panic and do not sugarcoat your message,” says Cashman, “but also remind people about your values, purpose, and vision, as well as how you will remain consistent with these as you navigate through the issues.”

Cashman also advises leaders to be more visible during challenging times. “Be careful not to retreat as people need to see you more frequently,” he says.

For its part, on Harley Davidson’s earnings conference call this week CEO Matthew Levatich said the firm expects anywhere from $45-55 million in additional costs because of the tariffs. "We are working with the administration and all governments we can to do the best we can to get these tariffs removed,” he said. “We are very engaged and have constant dialogue going on."