By Jessica DiNapoli
NEW YORK (Reuters) - U.S. sunscreen-maker Edgewell Personal Care (NYSE:EPC) will look to ink new two- to three-year contracts for chemicals from China as it anticipates "meaningful" tariff hikes if President-elect Donald Trump delivers on his campaign pledge, Chief Operating Officer Dan Sullivan told Reuters on Thursday.
Shelton, Connecticut-based Edgewell, along with its competitors, has a "China dependency" on the chemicals for its sunscreens, Sullivan said, explaining there is no steady, alternate supply.
The moves, which Sullivan said are common techniques for procurement teams, are aimed at limiting the increases in costs Edgewell would face if Trump imposes higher tariffs on the chemicals and other goods from China.
The company's sunscreen brands include Banana Boat and Hawaiian Tropic, sold at retailers like Walmart (NYSE:WMT) and Target (NYSE:TGT). Rival sunscreens include Kenvue (NYSE:KVUE)'s Neutrogena.
Trump has pledged that he would put a 60% tariff on goods imported from China, resurrecting his policies from his last term. There is already a 25% tariff on the chemicals for sunscreen, Sullivan said.
"A tariff increase is a tariff increase. If it’s going to go from 25% to 60%, that’s meaningful," he said. "The sun chemical conversation literally comes down to the reality there are no alternative sources for the product, at least not scalable, credible ones. This is not like buying pulp or aluminum, this is a highly engineered chemical.
"When you’re dealing with a category that doesn’t have alternative sourcing, you're going to be super creative and thoughtful on it," he added. "It’s something they’re working on now."
Edgewell's procurement team would look to negotiate individually with vendors in China and seek new contracts that lock up a two- to three-year supply of chemicals, since they cannot find reliable alternate sources, Sullivan said.
To offset the cost of prior tariffs, Edgewell increased prices on its sunscreens for two summer seasons in the mid-single digits, Sullivan said. An 8-ounce bottle of Banana Boat SPF 50 sunscreen on Walmart.com costs $8.97.
The consumer-products maker also cut costs, a strategy it would lean on again if Trump's new tariffs come to pass, Sullivan said.
Inflation on the sunscreen chemicals has also fallen, with Edgewell expecting a low-single digit rise in costs going forward, down from around 30% during the COVID-19 pandemic, he said.
U.S. consumers have pulled back on spending after once-in-a-generation levels of inflation the past several years.
"You have to be thoughtful around the state of the consumer and the caution we see right now with the consumer," he said.
In Trump's first presidency, Edgewell received an exemption from tariffs on steel used in its razor blades, Reuters reported at the time.