Inflation is the dominant subject of earnings calls.  What the executives say

Pepsi products go on sale at a Target store on March 8, 2022 in Los Angeles, California.

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One thing is clear at the start of the corporate earnings season: inflation remains a hot topic for companies.

About two-thirds of S&P 500 companies that reported earnings in the first two weeks of the season (October 10-21) had representatives mentioning inflation, according to a search of conference call transcripts by FactSet. Among these companies are PepsiCo, Citigroup and Abbott Laboratories.

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“The environment is clearly still very inflationary with many supply chain challenges in the industry,” said PepsiCo CEO Ramon Laguarta. The snacks and beverages company beat analysts’ expectations for revenue and earnings per share as its price increases supported its results, although some units saw volumes decline.

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Recent economic data shows few signs of slowing inflation.

The consumer price index rose 0.4% in September, which was a warmer reading than the 0.3% expected by Dow Jones, according to the Bureau of Labor Statistics. It was 0.6% without taking into account food and energy, which was also higher than the Dow Jones estimate of 0.4%.

The producer price index, which measures wholesale prices, also rose 0.4% in September. It was also above the Dow’s expectation of 0.2%.

Persistent inflation has led consumers to rethink expensive purchases as their purchasing power is reduced and has also created higher costs for businesses like Procter & Gamble. Last week, the maker of homeware brands such as Tide and Charmin released quarterly results that narrowly beat analysts’ expectations.

“Raw material and packaging costs, including raw materials and supply inflation, have remained elevated since we announced our initial outlook for the year in late July,” said Chief Financial Officer Andre Schulten. during Wednesday’s conference call. “Based on current spot prices and latest contracts, we now estimate an after-tax headwind of $2.4 billion for fiscal year 2023.”

The company was among a handful of multinationals that said inflation overseas was eating into financial results internationally as well as in the United States. Citigroup and Swimming poolwhich distributes swimming pool supplies, both said inflation in Europe hurt their business in the previous quarter.

Pool said total construction volume would likely be down in 2022 from 2021, although it beat expectations for the quarter.

Inflation also makes it harder for some companies to fill positions. human resources company Robert Demi says labor remains tight, while snap-on said wages needed to keep rising to get skilled workers. Be certain, Union Pacific said crew availability continued to improve and Health HCA said it could rely less on contract workers to fill the gaps.

Inflationary pressures this year have led to multiple rate hikes by the Federal Reserve. It should continue to work until the end of 2022, at least.

On the fiscal side, the government passed the Inflation Reduction Act earlier this year.

Several companies said the Cut Inflation Act would likely help their prospects, with those with a focus on green energy set to benefit from the legislation’s tax credits for forms of energy alternatives.

Electric vehicle manufacturer You’re here said it was too early to predict specific impacts on demand, but they expected to see benefits from the legislation for consumers migrating away from gasoline-powered cars. The company beat expectations for earnings per share for the third quarter, but revenue fell short of analysts’ expectations.

How long will the pressures last?

Predictions on the duration of these pressures vary according to the opinion of the leaders.

“Inflation continues to be a stubborn force globally, although we have begun to see moderating impacts in some areas of our business compared to the start of the year,” Abbott CEO said. , Robert Ford, October 19. The science company beat expectations for the quarter with earnings per share nearly 23% above expectations.

manufacturing company Dover also said inflation had come down from the past year and a half, specifically pointing to the company’s lower costs related to logistics and raw materials. This view is consistent with that of some economic pundits, who have said that “soft” inflation indicators are falling faster than the main indicators the Fed favors, such as the consumer price index, which can fall behind.

“Obviously we have some caution as to what will develop in the market,” Dover CEO Richard Tobin said on October 20. “I fundamentally disagree with what the Fed is doing right now.”

Others weren’t so optimistic, however. Tourbillon and Tractor Supply Company both said inflation is expected to persist at the current level through the first half of 2023 before cooling. Tractor Supply beat earnings per share but missed sales, while Whirlpool fell short of expectations for earnings per share by around 16%.

“Inflation remains persistent and high, and we expect this to continue through 2023 with some moderation in the second half of 2023,” Tractor Supply CEO Harry Lawton said.

Why Everyone Is So Obsessed With Inflation

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