Cincinnati firms poised to pounce on Trump tax cuts

Kroger, Cintas among the big winners

CINCINNATI - Local companies could get a multibillion-dollar profit boost if President-elect Donald Trump makes good on his campaign pledge to reduce the U.S. corporate tax rate to levels approaching 15 percent.

The change can’t come quickly enough for family-owned companies like JTM Food Group, where the combined taxes from local, state and federal entities now claim a hefty chunk of corporate profits.

“It’s north of 50 percent,” said Tony Maas, president and CEO of Harrison-based JTM, which supplies schools, restaurants and grocery stores with pre-cooked food options. “It’s very difficult, the tax burden and regulation on business. It’s really intrusive, to be quite honest with you.”

Republicans in Congress have talked about corporate tax reform for years, but Trump’s election – combined with new GOP majorities in the House and Senate – have prompted many to predict big corporate tax cuts are likely this year.

Since November, Wall Street research firms have identified Kroger, Macy’s and Cintas Corp. as likely beneficiaries of the proposed changes. But even bigger gains could come from privately held companies in which profits are taxed first at the corporate level, then again on individual returns when business income is distributed to owners.

That’s because the tax reform plans now being discussed would cap rates on pass-through income.

“We have talked about this with a lot of our clients,” said Dan Fales, shareholder at Clark Schaefer Hackett, a Downtown-based accounting firm. “There’s some real opportunity for our closely-held businesses.”

Fales is an attorney and accountant who has worked on tax returns for local business owners for more than 23 years. He knows of at least a dozen that could see significantly lower taxes, freeing up capital for factory expansion and new jobs.

“Most companies want to make the investments anyway,” Fales said. “I think it would accelerate the investments.”

That would be the case at JTM, said Maas, who broke ground Saturday on a $26.1 million expansion that will double JTM's production capacity, potentially fueling 10 years of new growth. Maas didn’t know how much JTM could gain in tax savings, but he knows how he’d spend those dollars.

“It’s all for reinvestment, all for better wages, all for charitable work, you bet,” he said. “That’s what being an entrepreneur, a business guy, that’s what being an American is" all about.

Several Wall Street analysts have outlined the potential impact of Trump’s tax plan on publicly traded companies, including these observations about Cincinnati-based firms:

  • Procter & Gamble could see its 2018 earnings increase 8 percent, from $4.41 per share to $4.75, according to a Dec. 16 report from Morgan Stanley.
  • Kroger could see a 14 percent earnings increase to $2.79 per share in 2018. That could lead to a $5 increase in Kroger’s stock price, JP Morgan Chase opined in early December.
  • Macy’s could reduce its annual tax liability by up to $300 million if the U.S. statutory rate falls to 15 percent, Motley Fool contributor Adam Levine-Weinberg wrote on Dec. 31.
  • Cintas Corp. could get a 20 percent earnings boost in 2018, making it the company best-positioned for tax reform in the business-service sector, Morgan Stanley opined Jan. 5

WCPO reviewed the regulatory filings of publicly-traded companies to find the local firms with the highest tax rates. Applying Trump’s 15 percent rate to each company’s most recent fiscal year, we found six firms that would have saved a combined $1.5 billion on taxes under Trump’s approach.

 

 

 

Kroger Co., Macy’s Inc. and Cintas Corp. could see the biggest benefit because all three are now paying taxes at or above the U.S. statutory rate of 35 percent. Some companies pay less than 35 percent because much of their income is generated overseas. Still others pay no U.S. taxes because their profits are offset by deductions, including interest payments or operating losses from prior years.

“It’s company specific but it’s safe to say some local companies stand to benefit greatly from the proposed tax changes,” said Victor Lassandro, managing director and senior portfolio manager for RiverPoint Capital Management, a Downtown-based investment advisor.

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