Trump Tariffs seem to be all anybody talks about these days. From Canada and Mexico to China and Europe, almost everybody is feeling the heat. On April 2, Trump is set to implement his reciprocal tariff policy, which will hit every country tariffing the U.S. with comparable tariffs. That policy might sound fair on the surface of it, but there are indications that Trump doesn’t understand the nature of Canadian tariffs on the U.S., many of which are over-quota tariffs that allow American exporters to ship considerable supplies tax-free.
Exactly how hard Trump’s tariffs will hit Canada’s economy is up for debate. Inflation did increase dramatically last month compared to the prior month. On the other hand, the Canadian dollar has actually made gains against the U.S. dollar since the start of the year. There are good and bad aspects to the situation.
One thing is undeniable though: some individual companies are being hit hard by Trump’s tariffs – in particular, those involved in Canada/U.S. cross-border trade. In this article, I will explore one TSX stock that could take a huge hit in fundamental terms from Trump tariffs and is already taking a hit in the stock market.
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Cargojet
Cargojet Inc (TSX:CJT) is a Canadian airline extensively involved in Canada/U.S. cross-border trade. The company is involved in transporting e-commerce packages from the U.S. to Canada. Technically, the threat here is not so much Trump’s tariffs themselves, but the Federal government’s retaliatory tariffs. A great many Cargojet-shipped products are Amazon-sold small items. These include:
- Electronics.
- Clothing.
- Food.
Technically, a lot of these items originate in China. However, the fact that they are stocked in Amazon warehouses before coming to Canada means that they have tariffs put on them. So, Cargojet faces the threat of lower delivery volume due to Canada/U.S. tariffs.
A sneak peak at Cargojet’s earnings
One way we can gauge the likely impact of Trump’s tariffs on Cargojet’s business is by looking at the company’s most recent earnings release. Although the release came out before Trump’s tariffs came out, it can point to areas where CJT is vulnerable.
In the fourth quarter, Cargojet delivered:
- $293 million in revenue, up 32% year over year.
- $91.7 million in earnings before interest, taxes depreciation and amortization (EBITDA), up 12.7%.
- $103.6 million in cash from operations, up 228%.
As you can see, the fourth quarter was a period of considerable growth for Cargojet. That’s a positive in itself, but it also shows the company’s vulnerability to Trump tariffs. Tariffs slow the trade that Cargojet earns its revenue off of. The company said in its fourth-quarter earnings call that its exposure to tariffs was “limited,” but that’s a tacit admission that there is some exposure. So I’d expect a tariff impact in the upcoming release.
The bottom line
Cargojet is a Canadian company that is exposed to Trump’s tariffs. That is beyond dispute. Whether the hit it takes for them will be huge or not remains to be seen. The company is optimistic that the tariffs will be offset by increased China-Canada charter services. We’ll just have to wait and see.
