Margin math

Companies are now expected to pay at least $1.2 trillion more in 2025 expenses than was anticipated on Jan. 1. Revenue expectations have risen — but earnings expectations have fallen — producing a 64-basis-point contraction in margin, according to 15,000 sell-side analysts contributing to the S&P Capital IQ and Visible Alpha Estimates. If the pattern holds for firms without sell-side coverage, the cost shock would exceed $1.2 trillion in lost profit.

Key Findings:

• Global margin compression: A $907 billion expense shock is passed on at least two-thirds to consumers ($592 billion in higher prices) and the remainder absorbed by companies.
• Stronger together: Margin stress spreads through supply chains. Firms with “supply chain tailwinds” (partners outperforming) were 10% less likely to see margin compression (57% vs. 67%) than firms facing headwinds.
• Closing the pressure relief valve: The de minimis rule ($800 parcel exemption) ended mid-2025, squeezing tariff-exposed sectors as shipments per container fell by half, marking a clear inflection in global trade costs. 
• Tariff vs. tech tug of war: In 2025, AI lifted margins; tariffs pulled them down. Sell-side analysts rewarded balance: neutral-tone firms saw favorable margin revisions 73% of the time vs. 16% for those negative on both.
• Oh, Canada is winning 2025: Regionally, Canada (+9 bps) and China (–2 bps) held margins steady; US and Europe (–54 bps) sat mid-pack, Asia ex-China (–61 bps), MEA (–75 bps) and Latin America (–91 bps) lagged. ‒ 
• The road ahead: Current belief curves imply faith in temporary shocks or successful cost mitigation, not structural decline. Margins recover from –64 bps to within 8-10 bps of Jan. 1 expectations by 2027.

Explore the datasets used to conduct this research:

Purchasing Managers’ Index™ (PMI™)
A leading indicator of global economic health, tracking business conditions across industries and regions.

Panjiva
Comprehensive supply chain intelligence with detailed company-level data on global trade and shipments.

Business Relationship Analytics
Provides a detailed global network of economic flows by combining S&P Global’s Business Relationships, Financials, and Filings data with Redgraphs Inc’s patented estimation process to fill in missing economic values for identified relationships.

Visible Alpha Estimates
Includes forecasts, assumptions, and logic from full working sell-side models.

S&P Capital IQ Estimates
Standardized global consensus data offering transparent visibility into analyst expectations.

ProntoNLP & Machine-Readable Earnings Call Transcripts
Finance-tuned NLP and structured transcript data enabling insight extraction from earnings calls.

Headcount Analytics
Workforce data providing visibility into hiring trends and company performance.