Inflation is dominating the conversation about earnings calls. Here’s what the executives are saying
Pepsi products are displayed for sale in a Target store on March 8, 2022 in Los Angeles, California.
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One thing is clear at the start of earnings season: Inflation remains a hot topic for companies.
About two-thirds of the companies in the S&P 500 that reported earnings for the first two weeks of the season (October 10-21) have reps mentioning inflation, according to a search of conference call transcripts. performed on FactSet. Among those companies are PepsiCo, Citigroup and Abbott Laboratories.
“The environment is clearly still very inflationary with lots of supply chain challenges across the industry,” said Ramon Laguarta, chief executive officer of PepsiCo. Manufacturer of snacks and beverages beat analyst expectations for both revenue and earnings per share as the price rose highlighted its profits, even as some units saw volume drop.
Recent economic data shows little sign of slowing inflation.
Consumer Price Index up 0.4% in September, which is higher than the 0.3% Dow Jones expected, according to the Bureau of Labor Statistics. It was at 0.6% without food and energy, also well above the Dow Jones estimate of 0.4%.
Producer price index, which measures wholesale prices, also rose 0.4% in September. The figure was also above Dow Jones’ 0.2% expectation.
This has caused consumers to rethink expensive purchases when their spending power is tight and also creates higher costs for companies like Procter & Gamble. The home goods company behind Tide and Charmin released quarterly figures last week that exceeded analyst expectations.
“The cost of raw materials and packaging materials including commodities and supply inflation have remained high since we provided our initial outlook for the year at the end of July. Based on current spot prices and Under the latest contract, we now estimate $2.4 billion in after-tax profit for fiscal year 2023,” Chief Financial Officer Andre Schulten said on Wednesday’s conference call.
The company is among the few multinationals that say inflation abroad is falling at margins internationally as well as in the US. Citigroup and Poolpool supplies distribution company, both said inflation in Europe hurt their business last quarter.
Pool said total construction volume is likely to decline in 2022 compared to 2021, although it beat expectations for the quarter.
Inflation is also making it harder for some companies to fill positions. HR company Robert Half said the workforce is still tight, while Snap-On said wages must continue to rise to get skilled workers. To make sure, Union Pacific indicates that crew readiness continues to improve and HCA Healthcare said they could rely less on contract workers to fill the void.
Inflationary pressures this year have resulted in the Federal Reserve increasing its share rate. The Fed has raised rates four times and is expected to continue raising rates through the end of 2022.
On the financial side, the government passed the Inflation Reduction Act earlier this year.
Many companies say the Inflation Reduction Act is likely to help their outlook, with green energy emphasizeers poised to benefit from the law’s tax credits for alternative forms of energy.
Electric vehicle manufacturer Tesla said it was too early to predict specific impacts on demand, but it had expected to benefit from the legislation’s benefits for consumers moving away from gas-powered cars. Company beat earnings per share expectations for the third quarter but revenue fell short of analysts’ expectations.
How long will the pressure last?
How long these pressures will last depends on which executives you ask.
“Inflation continues to be a stubborn force globally, although we have begun to see some moderate impact in some areas of our business compared to the start of the year,” said the CEO. Abbott Robert Ford said on Oct. 19. The science company beat expectations for the quarter with earnings per share nearly 23% higher than expected.
Production company Dover also said inflation has fallen from the past year and a half, specifically pointing out that the company has reduced costs related to logistics and materials. That view is in line with that of some economists, who argue that “soft” inflation measures are falling faster than key Fed-supported indicators such as the consumer price index. may fall behind.
Dover CEO Richard Tobin said October 20: “Obviously we have some caution about what’s going to develop in the market.
Others are not so optimistic. Whirlpool and Tractor supply company both say they will persist at current levels for the first half of 2023 before cooling off in the first half. Tractor Supply beat earnings per share but missed sales, while Whirlpool fell below earnings per share expectations by about 16%.
“Inflation remains persistent and elevated, and we anticipate this to continue well into 2023 with some moderation in the second half of 2023,” said Tractor Supply CEO Harry Lawton.
