It’s still early in first-quarter earnings season, but company executives have already had a lot to say about the impact of inflation on their businesses. The topic has come up on some 45% of
earnings calls in the past two weeks, based on a search of Sentieo transcripts. Various companies in different industries are alternatively seeing inflation as an opportunity, a threat, or simply a manageable side effect of a boom year.
The specter of inflation has been a hot topic on Wall Street as well, prompting a surge in bond yields since the start of 2021. Investors have moved to price in a rapid recovery and faster price increases in the economy. Elsewhere, tangled supply chains and spiking demand for raw materials are also causing shortage-induced price pressures for many firms.
Many companies are already seeing inflation — or expect to soon — in their input costs, prompting them to pass the costs along to their customers by raising prices. Wage inflation has come up this earnings season at companies ranging from burrito chain
Chipotle Mexican Grill
(ticker: CMG) to car-parts wholesaler Genuine Parts (GPC). Copper-miner
(FCX) and airline Southwest Airlines (LUV) both discussed higher energy and fuel prices on their first-quarter calls. Firms including oil-field services provider Halliburton (HAL) and consumer-goods giant Procter & Gamble (PG) spoke about plans to pass higher input costs along to customers.
Here are a few highlights from recent earnings calls on the topic of inflation:
We all are watching very carefully comments from central banks around the world as we look forward. I think in my opinion, there’s no question that we will see an increase in inflation. The question is how much, how quickly, and how we respond to that.
Kansas City Southern
(KSU) CMO Mike Naatz, April 16:
We continue to maintain a disciplined pricing strategy. We are targeting inflation or better price increases. Right now, the macro pricing environment appears to be very healthy.
Inflationary pressures—particularly surrounding some of our key commodities—it looks like it is going to be more of a headwind in [2021 and 2022]…I think it is important to highlight that, as an overarching principle around the world, we typically look to take pricing in line with inflation. And I would expect that principle will continue to be adhered to as we move into the back half of 2021 and even into 2022.
We experienced a significant acceleration of raw material and logistics cost inflation during the quarter. Coming into the year, we were expecting an inflationary environment and had prioritized selling price increases across all of our businesses…With a higher inflation backdrop, we have already secured further selling price increases and are in the process of executing additional ones during the second quarter.
Procter & Gamble
(PG) CFO Andre Schulten, April 20:
The commodity cost challenges we face this year will obviously be larger next fiscal year [beginning in July]. We will offset a portion of this impact with price increases…The exact timing and amount of increases vary by brand and subbrand, in the range of mid- to high-single digits.
Chipotle Mexican Grill
We feel like if there is going to be significant increased labor inflation because of market-driven [forces] or because of a federal minimum wage, we think everybody in the restaurant industry is going to have to pass those costs along to the customer. And we think we’re in a much, much better position to do that than other companies out there.
(HAL) President & CEO
As certain components of our input costs rise, we are working with our suppliers and our customers to adjust our gross pricing in line with cost inflation we are seeing in the market…Improving U.S. economic activity and winter weather disruptions led to increases in sand, chemicals, cement additives and raw materials costs.
(TEL) CFO Heath Mitts, April 21:
Certainly, where we’re feeling the biggest inflation right now is on the freight side…We are seeing a little bit of higher input costs, particularly with resins, and some of that’s pretty directly attributable to the weather issues that were in Texas earlier this past quarter. And then copper prices, we’ve seen those creep up.
(DHI) VP of
IR Jessica Hansen,
We expect both our construction and lot costs will continue to increase on a per square foot basis. However, with the strength of today’s market conditions, we expect to offset these cost pressures with price increases.
Inflation is good for copper. With what the world is doing today—with all this spending on the Covid recovery [and] to deal with economic inequalities—that’s pushing money to people who consume, to create economic velocity, which creates demand for copper. So in the broader sense, all these forces will work to the benefit of our company.
Genuine Parts Company
We’re watching and seeing [cost] inflation in different parts of the world and in different parts of the business, ranging from wage inflation, [to] global logistics inflation, [to] commodity inflation. [We’re] doing good work around being cost productive to offset some of that inflation.
(PNR) President & CEO
While inflation remains high, we have instituted a number of selling price increases across the portfolio that we expect to help mitigate inflation in the second half of the year.
While fuel prices are still below year-ago levels, energy prices have been creeping up over the past few quarters…We have great hedging protection in place, with hedging gains beginning at Brent prices in the $65 to $70 per barrel range, and more material gains once you get to $80 per barrel and higher.
The global material cost inflation, in particular in steel and resins, will negatively impact our business by about $1 billion. We expect cost increases to peak in the third quarter.