Market Jitters as Trump’s Tariff Plans Resurface
Fisher & Paykel Healthcare, a major player in the global medical device industry, is facing renewed pressure following President Donald Trump’s latest tariff threats. On January 21, Trump suggested imposing tariffs on medical imports from key trading partners, including Mexico and Canada, a move that could significantly impact the New Zealand-based company’s bottom line.
The announcement triggered an immediate reaction in the financial markets. Fisher & Paykel Healthcare’s stock dropped 70 cents to $38.30, reflecting investor concerns over the potential financial toll of these tariffs. The broader New Zealand sharemarket also showed signs of uncertainty, with the S&P/NZX 50 Index slipping 0.27% amid subdued trading activity. Analysts and investors alike are now closely monitoring Washington’s next steps, wary of the economic implications for the medical device sector.
The Cost of a Worst-Case Scenario
According to research from Craigs Investment Partners, Fisher & Paykel Healthcare’s exposure to US tariffs is substantial, as reported by BusinessDesk. The company derives roughly 40% of its revenue from US sales, and with its manufacturing plants in Mexico and China, it remains vulnerable to potential trade penalties.
Craigs’ analysts modelled three possible tariff scenarios, with the worst case involving a 20% universal tariff on medical imports. Under this scenario, Fisher & Paykel Healthcare could face a $46 million hit to its net profit after tax (NPAT), amounting to a 12% decline. Even a more moderate 10% tariff on medical imports could result in a $60 million annual impact before mitigation measures are taken.
Compounding the issue, Fisher & Paykel’s reliance on its Tijuana, Mexico facility for US exports could force the company to reroute shipments from its Auckland plant if Mexico-specific tariffs are implemented. This would add an estimated $20 million in freight costs annually.
Passing the Costs to Customers?
While Fisher & Paykel Healthcare has strong market positioning in the hospital segment, allowing it to pass some tariff-related costs onto customers, its obstructive sleep apnea (OSA) business is more exposed. Analysts suggest that in a scenario where a 10% tariff is imposed, the company could offset approximately 74% of the increased costs in its hospital segment but only 50% in OSA.
Additionally, a weaker New Zealand dollar could help cushion some of the financial strain, but this factor remains unpredictable. Craigs Investment Partners estimates that if a 10% universal tariff is applied, the net impact on NPAT could range between $23 million and $46 million. However, should punitive tariffs specifically target Mexico, the estimated loss would increase to $18 million beyond initial projections.
Company Response and Recent Performance
Despite growing concerns, Fisher & Paykel Healthcare has remained relatively tight-lipped about the potential impacts of tariffs. In its most recent financial update, the company refrained from speculating on the potential policy changes.
However, Fisher & Paykel Healthcare’s underlying business performance remains strong. The company recently upgraded its revenue and earnings guidance for the fiscal year ending March 31, 2024, with projected full-year operating revenue expected to reach $1.73 billion. A steady demand for hospital consumables and the positive reception of its new Nova Micro OSA mask has helped maintain investor confidence despite the looming uncertainty.
Uncertainty Looms Over Future Strategy
With Trump’s tariff plans still in flux, the degree of impact on Fisher & Paykel Healthcare hinges on the specific policies enacted. If tariffs are confirmed, the company may need to explore alternative supply chain strategies, such as shifting more production to New Zealand or other locations less affected by trade restrictions.
For now, investors and industry stakeholders are closely watching developments in US trade policy, weighing the risks against Fisher & Paykel Healthcare’s strong financial foundation.