Fincredible MacroTalk February 9th: Inflation
Comments on inflation from $TSN $CLX $PG $CL $AMZN $SBUX $RL $LEVI $ENR $TDG $UPS $OMC $LOGI $ALL $L $TMO
As the market settles, we turn our focus to the U.S. January CPI release set for tomorrow. Inflation has been at the center of many earnings calls these past months, with companies reporting significant cost increases due to inflation, thus affecting their financial performance. On top of that, inflation numbers will also likely affect Federal Reserve decisions regarding QE tapering and rate hikes. Given the importance of the topic, we have decided to share what company executives are saying regarding inflation.
All quotes are sourced from Fincredible.
Consumer Non-Cyclicals
Consumer non-cyclicals companies have experienced firsthand the costs of inflationary pressures. Commodities, labor and transportation were all mentioned as sources of significant cost inflation, which has eroded margins. In response, companies like Tyson Foods and P&G have adjusted prices, passing on the added costs to consumers.
“And then on inflation, very similar to what you've heard from our peers, we are seeing inflation broadly across all the inputs within the supply chain. We're calling out commodities and transportation because, by far, that's the biggest amount of inflation we're dealing with. For us, commodity is still about 2/3 of the inflation, about 1/3 transportation, and resin, obviously, is the biggest component of the commodity inflation.”
Kevin B. Jacobsen, CFO
“Just yesterday, we announced to retailers that we are increasing pricing on certain personal health care brands in the U.S. effective mid-April. The degree and timing of these moves are very specific to the category, brand and sometimes the product form within a brand. This is not a one-size-fits-all approach. We're also taking pricing in many markets outside the U.S. to offset commodity, freight and foreign exchange impacts.”
Jon Moeller, CEO
“I'll say that all boats rise in this environment in the sense that everyone is impacted by the inflationary environment. So as a result, you're going to see pricing up pretty consistently across all categories. That plays, as you've heard from others, into elasticity that you're not seeing one competitor move, you're seeing the category move. So elasticity tends to be a little bit less.”
Noel Wallace, CEO
“Cost of food in the U.S., while it is higher, is still very attractive relative to the balance of the world. Labor costs have been up 20%, cattle costs are up 22%. Grain has been up 29%. This year in freight, I mentioned earlier, is up 32%. We're not asking customers or the consumer ultimately to pay for our inefficiencies. We're asking them to pay for inflation.”
Donnie D. King, CEO
“We're also making sure that our pricing incorporates inflationary cost pressures on our business. In the quarter, our cost of goods sold was up 18% relative to the same period last year. We are seeing higher costs across our supply chain, including higher input costs, such as feed and ingredients. We're also managing higher cost of labor, transportation due to strong demand and limited availability. With these higher costs, we work closely with our customers to achieve a fair value for our products. As a result, our average sales price for the quarter increased 19.6% relative to the same period last year.”
Donnie D. King, CEO
Consumer Cyclicals
Not much different for the consumer cyclicals companies, these companies have established that it is necessary to pass on some level of cost increases onto the consumers to maintain their margins. These companies are no longer reacting to inflation, but proactively planning price increases for the coming year.
“As we mentioned in the last earnings call, we did see more than $4 billion in costs from inflationary pressures and loss productivity and disruption in our operations. The inflation primarily relates to wage increases and incentives in our operations as well as higher pricing from third-party carriers supporting our fulfillment network. Loss productivity and network disruptions were driven primarily by labor capacity constraints due to challenges in staffing up our facilities for peak. This is driven by the very tight labor market in the second half of 2021 and more recently by the emergence of the Omicron variant. We do expect these cost challenges to persist into Q1, albeit adjusted for lower seasonal volumes relative to the fourth quarter.”
Brian T. Olsavsky, CFO
“Prior to the emergence of the Omicron variant, we were experiencing some inflationary pressures and staffing issues resulting from the broader pandemic. When the Omicron surge began, inflationary costs and staffing shortages were amplified, well in excess of our expectations.”
Kevin R. Johnson, CEO
“We have already taken pricing actions this fiscal year, 1 in October 2021 and another in January 2022. And we have additional pricing actions planned through the balance of this year, which play an important role to mitigate cost pressures, including inflation, as we position our business for the future.”
Kevin R. Johnson, CEO
“Now on the headwind side, we've been very clear that the magnitude of gross margin expansion in fiscal '23 will be tempered by cost inflation, especially raw materials costs, which we called out early last quarter, and we expect to be with us through the spring of '23.”
Jane Hamilton Nielsen, CFO
“We have plans to take additional price increases in 2022 and beyond, helping us to offset inflationary pressures. Even as we take price, our products provide an exceptional value to consumers.”
Charles Victor Bergh, CEO
Industrials
Industrials also reported significant inflation, but UPS expects inflation to taper off in the second half of the year.
“However, adjusted gross margin decreased 320 basis points to 37.5% versus the first quarter of 2021 as pricing, lower COVID-related costs and synergies were offset by more than 700 basis points of margin erosion from inflationary cost pressures.”
John Drabik, CFO
“In general, we saw a little bit of an increase in inflation in Q1, primarily on electronic components, not so much on labor, although we would anticipate, obviously, given the macro indications that labor will feel that inflationary pressure throughout the year. In general, our goal with pricing is to institute price increases above inflation, so real price increases. That philosophy has not changed in this environment. Ultimately, with the higher inflation, we've got to pass on some of that to the customer base, and that's done at the operating unit level and the teams are doing their best job to get in front of that, knowing that the inflationary pressures will likely continue to increase throughout the balance of the year.”
Kevin M. Stein, CEO
“From an inflation standpoint, I think we would look for higher growth in the first half of the year versus the second half of the year. So as you think about cost per piece in the U.S. in particular, which is sort of 3-plus percent, I would expect that number to be higher in 1H and slightly lower in 2H with a few moving pieces.”
Brian Newman, CFO
Others
Inflation has been broad based, with almost all economic sectors experiencing significant cost increases over the past year. Companies like Logitech and Thermo Fisher Scientific Inc. are already planning considering price increases for the coming year given the inflation they’re experiencing.
“That broad cost increase has only just begun. Nate mentioned and we've talked about in the last call, we've done some selective price increases now and we'll keep an eye on that. If inflation looks like it's here to stay, we're pretty good at raising prices when we need to be. We have a history of doing that during inflationary periods or especially during currency changes in different parts of the world. So I think we're prepared for that, and we're starting down that path. We'll see where it goes.”
Bracken P. Darrell, CEO
“We implemented rate decreases in early 2021 to reflect, in part, Allstate's lower expense ratio and the reduced frequency we were experiencing from the pandemic. But as the year progressed and inflation escalated, we responded with rate increases that began in the third quarter and continued into the fourth quarter.”
Glenn Thomas Shapiro, President
“Inflation will continue to be a major issue as we will still have the dual problems of cost push and demand pull inflation. My guess is that unless the Fed moves quicker, we can expect inflation to stay at elevated levels for this year and likely next.”
James Tisch, CEO
“So we have been very active on using the pricing lever as part of our PPI Business System, and we have a great team that helps our businesses do that in a very appropriate way. And we've seen basically in the second half of 2021, and as we project forward to '22, pricing around about 2x the normal level given the inflationary environment we're facing.”
Stephen Williamson, CFO
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