Ingredient producer shares initially showed resilience following the tariff news on April 2 because it had limited direct impact on them. However, they were swept up in the market turbulence and corrected by a mid- to high-single digit on April 7 as investors began to digest the implications.
Why it matters: While tariff exposure for finished products is limited, as most global ingredient companies manufacture locally for the US market, these firms will still feel the effects of higher prices for imported raw materials and weakening consumer demand, which could weigh on volume growth.
• Certain raw materials used in formulations, particularly natural ingredients such as patchouli, jasmine, and vanilla (commonly used in flavors and fragrances), cannot be sourced at scale within the US and would be subject to tariffs. These costs are likely to be passed on to customers over time.
• Customers—primarily consumer packaged-goods companies—would likely pass on the higher costs to consumers, potentially leading to reduced consumption, particularly in more-discretionary categories like fine fragrances, or a shift toward lower-priced private-label alternatives.
The bottom line: We maintain our fair value estimates across our ingredient coverage as we continue to assess the situation. The longevity of tariffs remains uncertain, and although we anticipate some potential short-term pain, we believe the long-term impact will be limited for the industry.
• At current prices, we see shares of DSM-Firmenich, Symrise, and Croda as attractive. These companies only generate between 23% and 26% of their revenue from North America and benefit from well-diversified geographic and end-market exposure.
• Givaudan and Novonesis also have limited sales exposure to North America (23% for Givaudan and 33% for Novonesis) but are trading in 2- and 3-star territory, so we do not believe they currently offer a sufficient margin of safety to warrant an investment.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
