S&P Warns of Flex, Jabil Credit-Rating Downgrades If Tariffs Rise to 30%

S&P Global Ratings is “fairly confident” that tech manufacturers Flex and Jabil “could manage their metrics to preserve” their current “BBB-“ credit ratings if the List 4 Section 301 tariffs stay at 15 percent, said the financial analytics firm Friday. But in a 30 percent tariff “scenario,” as the first three tariff rounds are scheduled to rise to on Oct. 15, the potential EBITDA declines “could prove to be too severe” for either company to avoid a ratings downgrade, said S&P. Before any downgrade, “we would consider each company's tariff mitigation and balance sheet management strategies,” it said. “If we believed credit metrics were likely to exceed our downgrade thresholds over a 24-month period, we could lower the ratings.” It estimates goods generating 6-9 percent of Flex's revenue and 12-17 percent of Jabil's sales will have exposure to the four rounds of tariffs, it said. “Neither company discloses these figures so we estimated them based on a review of revenue by geography for each of the customers they name in their annual reports,” it said. Jabil’s largest customer, Apple, draws 37 percent of its revenue from U.S. sales, it said. For Flex, the largest customer is Ford, which gets 61 percent of revenue from the U.S., it said. In fiscal 2019 ending March 31, 25 percent of Flex revenue came from manufacturing operations in China, it said. It estimates Jabil derives 40-50 percent of revenue from Chinese production, it said. Flex and Jabil didn’t comment Monday.