Inflation Drumbeat Reverberates on Latest U.S. Earnings Calls By Bloomberg

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Inflation Drumbeat Reverberates on Latest U.S. Earnings Calls

(Bloomberg) — Temporary may well extend into 2022.

The outsize gains in U.S. inflation measures that exceeded forecasts over the last four months have been borne out in recent corporate earnings calls, with many executives highlighting greater pricing power.

During the kickoff to the current earnings season, companies including paints and coatings producer PPG Industries Inc (NYSE:)., beverage maker Coca-Cola (NYSE:) Co. and industrial supplies distributor Fastenal (NASDAQ:) Co. have telegraphed building price pressures.

“This inflation cycle is much higher than anyone anticipated and we’re continuing on a business by business basis, working to secure further selling price increases,” PPG’s Chief Executive Officer Michael McGarry said on the company’s July 20 earnings call.

Business surveys continue to show elevated input costs as supply of both materials and labor lags behind solid demand. Spot commodities prices remain elevated and wage pressures are building.

On Wednesday, Coke said it’s also feeling the effects of inflated pricing of commodities and materials.

“In 2022 there are more pressures coming at us, and we are working closely with our bottling partners to mitigate some of those pressures,” Coke Chief Financial Officer John Murphy said in an interview Wednesday. “It’s difficult to tell how far into 2022 those pressures persist.”

Even as the inflationary drumbeat intensifies, Federal Reserve officials insist they can keep the monetary spigots wide open to ensure stronger roots for the economic recovery.

Fed Chair Jerome Powell told lawmakers last week that the primary drivers of the recent overshoot of inflation– including airfares, cars and hotel stays — will subside.

“We think that those things are clearly temporary,” Powell told the Senate Banking Committee. “We don’t know when they’ll go away. We also don’t know whether there are other things that will come forward and take their place.”

The risk, says JPMorgan (NYSE:) Chase’s Jamie Dimon, is that inflation “could be worse than people think.”

“I think it will be a little bit worse than what the Fed thinks,” the bank’s CEO said on the July 13 earnings call. “I don’t think it’s all going to be temporary, but that doesn’t matter if we have very strong growth.”

At Fastenal, officials highlighted tight supply chains, longer delivery times and shipping challenges that are driving up costs that the company is passing on to customers.

“Internationally, there continues to be a shortage of capacity which has made moving products, particularly fasteners, increasingly costly and sustained long lead times,” CFO Holden Lewis said on the company’s July 13 call. This “dynamic could persist” through 2021, he said.

“Price actions to date have largely matched cost increases. There’s a ton of inflation going on. There’s inflation because of disruption,” Fastenal CEO Daniel Florness said.

Executives on Inflation

“This is an atypical level of inflation… It’s the highest inflation level our company has seen in as many years as we can remember.” – Conagra Brands (NYSE:) Inc. CEO Sean Connolly

“Is there somewhat more inflation out there? There is. Are we going to be pricing to deal with it? We certainly are.” – PepsiCo (NASDAQ:) Inc. CFO Hugh Johnston

“In order to combat the economic factors we’ve been experiencing, we’ve begun implementing price increases in many of our markets.” – WD-40 Co. CEO Jay Rembolt

“Beyond capacity challenges, we continue to face raw material price increases, due to supply and demand trends and supply chain disruptions.” The company will take “further actions when and if necessary.” – La-Z-Boy Inc. CEO Melinda Whittington

“Where necessary, we are taking price increases to pass through some of the cost pressures that we cannot offset.” – Tractor Supply (NASDAQ:) Co. CEO Harry Lawton

On the company’s earnings call Tuesday, Chipotle Mexican Grill Inc (NYSE:). CFO Jack Hartung said the recent menu price increase is “holding strong,” while also noting higher beef, transportation and labor costs in the third quarter.

Almost 74% of the firms surveyed recently by the Philadelphia Fed indicated increases in wages and compensation costs over the past three months, and 57% indicated they were planning to boost pay by more than originally planned. The median expected increase in wages this year was 4% to 5%, though more than 21% of respondents said they could rise 5% to 7.5%.

More companies are offering incentives including hiring bonuses to lure workers. The job search website Indeed said that at the end of June, 4.2% of the firm’s job postings listed on the site offered some type of incentive. That was more than twice the share seen a year ago.

“While we have clear growth opportunities, the widespread labor shortages impacting many companies and industries across the U.S. is also impacting us through higher wage rates and lower productivity,” FedEx Corp (NYSE:). CFO Mike Lenz said on the company’s June 24 earnings call.

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