Fincredible MacroTalk September 8: Inflation
Management commentary on inflation from $TSN, $KHC, $SJM, $DG, $WEN, $ANF, $AAP, $WDC, $SLF, $ROOT, $TORO, $BRC, $GEF, $AMH, $DSEY.
A couple of months ago, inflation was one of the main concerns for investors. The U.S. economy was running hot, and there were fears that the fiscal and monetary stimulus would result in persistently higher inflation. However, with the release of the July CPI numbers that appeared to show a slowdown in inflation, investors shifted their attention to other more pressing factors like the Delta variant, a possible FED tapering, and geopolitical risks.
While inflation is not currently at the top of mind for most investors, its evolution over the coming months will still likely affect the U.S. stock market.
Since the U.S. BLS is set to release the August 2021 CPI numbers next week, it’s a good time to review what companies have been saying over the past month regarding inflation. In this post, we’ve compiled the best quotes regarding inflation from company earnings calls.
Consumer Non-Cyclicals
Consumer non-cyclical companies mentioned several drivers for inflation, including ingredients, packaging, transportation, and wages. These companies have seen inflation across the board, but there’s no agreement on the future outlook. Tyson Foods expects inflation to taper off in the coming quarter, while J M Smucker expects inflation to persist at least one more year.
“We've had inflation on all inputs. We believe grain and our cost of goods will crest in early Q4. In fact, it has based on the forward-looking curves. This is in our cost of goods. We've seen great improvements in our cost management and our execution by our team, much of that has been masked by inflation. And then go to labor. Labor is our single biggest issue we face not only in Chicken but also in our other businesses. We've increased wages and created flexible shifts, childcare, on-site clinics. The Delta variant has been a disruptor. We were on a good trajectory, and then the Delta variant showed up and we've taken a step back as a result of that. We've got plans to mitigate that but the health and safety of our team members are our highest priority. We are more inefficient than we have historically been. Certainly, a big part of what we have to solve. But essentially, it takes us 6 days to get 5 days worth of work.”
Donnie D. King, President, COO
Tyson Foods Q3 2021 Earnings Call
“So if you look at the inflation we saw in Q2, it's mainly coming from ingredients, things like soybeans, edible oils, packaging and some transportation as well. And it's very similar to what we saw in the first quarter. And most recently, we also saw some increases too but driven by resin cost and some higher transportation rates.”
Carlos A. Abrams-Rivera, U.S. Zone President
Kraft Heinz Q2 2021 Earnings Call
“Macroeconomic factors have continued to evolve creating incremental supply chain uncertainty around the availability of labor and transportation and multiple extreme weather events have impacted key commodities important to our business. As a result, we now anticipate ongoing cost inflation and supply disruption to persist beyond our previous expectations and through the remainder of the fiscal year. In response, our teams are implementing additional net pricing actions and cost savings initiatives.”
Mark T. Smucker, CEO
J M Smucker Q1 2022 Earnings Call
Consumer Cyclicals
Consumer cyclical companies have also seen inflation across the board. Rising prices in transportation and wages appear to have exceeded forecasts, while commodity inflation was in line with expectations.
“But like with our Q2 results, we do expect some continued pressure on gross margin in the second half due primarily to inflation, which we believe to be transitory, but related to higher transportation costs, higher than previously expected. Of course, we're seeing elevated demand with the great sales, and that's resulting in some transportation and supply capacity challenges with our third-party carriers.”
Dollar General Q2 2021 Earnings Call
“So we are seeing the increased freights coming into us on the third quarter. So it started to build here in the first half. Some of that gets booked up in your inventory, and then we'll start to flow that through here in the third quarter. So it will be a little bit down there versus Q2, but the great thing is we're still talking about 300 basis points up versus 2019, and that's baking in 300 to 400 basis points of pressure from, hopefully, transitory freight inflation that will hopefully sort itself out in the future. But we'll see when that happens. So really pleased with the progress on gross margins.”
Abercrombie & Fitch Q2 2021 Earnings Call
“In terms of inflation, we certainly experienced inflation throughout the P&L. And the wage inflation was higher than our expectations. Certainly, the product costs are well within our expectations. They are a little over 2%.”
Advance Auto Parts Q2 2021 Earnings Call
“On a year-to-date basis, we absorbed commodity inflation of about 1%. On the year, we are getting to 2% to 3%, and it's basically driven by bacon and beef. So that puts pressure on it. And the second one is labor inflation, a little bit of an uptick, right, year-to-date, about 5% labor inflation. We're expecting in the year about 5% to 6%.”
Wendys Co Q2 2021 Earnings Call
Technology
Western Digital, a provider of data storage solutions, has seen inflation across the board. Since memory is integral for tech, rising memory prices could affect the whole tech hardware industry.
“And we're definitely facing inflationary pressures across the board. We've talked about the semiconductor components already on this call, and we're seeing lead times extend out. We're seeing challenges on the cost side as well. And we're going to -- we think we're going to face that across a number of different commodities.And that's the discussion we need to have with our customers as well. And I think most of them are also facing inflationary pressures. So it's not something that you can work out in a single quarter.”
Western Digital Corp Q4 2021 Earnings Call
Financials
“You can see general inflation throughout the U.S. economy. I don't see that dropping back down in the next 12 months to zero trend levels. So I see the severity as part of probably more of a 12- to 18-month sustained increase. But again, we've only got 3 to 6 months' worth of data so the trends are pretty hard to tell there.”
Alexander Edward Timm, CEO
Root Inc Q2 2021 Earnings Call
Healthcare
Medical inflation, one of the components of CPI that has seen one of the biggest rises over the past decade, has not accelerated its growth in this inflationary environment.
“But as far as the overall trend, there's always medical inflation. That's been a part of medical care in the U.S. for a very long time. And we always have a forecast, which we work with outside actuarial firms to confirm as to what medical inflation will be and build that into our pricing. So at this point, beyond some of the anomalous impacts related to the pandemic, we're not seeing anything that would suggest, for example, a substantial increase in the level of medical inflation.”
Daniel Richard Fishbein, President
Sun Life Financial Inc Q2 2021 Earnings Call
Industrials
Industrial companies cited materials and commodity prices as the biggest drivers of inflation, with logistics, transportation, and wage inflation also contributing to the pricing pressures.
“From an inflation standpoint, I would say the most significant inflation that we're seeing is material and commodity inflation. In particular, steel and resins have been significant to us. But there's also inflation that we're seeing related to logistics and transportation. Again, nothing unique to Toro, all the things that you're seeing ensure across many of the companies that you cover. And wage inflation has become more significant later in the year. “
Toro Co Q3 2021 Earnings Call
“As you would expect, we are seeing inflationary pressures in raw materials, freight and certain services. We're also seeing wage inflation, and we're finding it difficult to fill open manufacturing roles. But we're automating wherever we can, we're driving efficiencies at a strong pace and we're putting through targeted price increases. We believe that these actions will offset any inflationary forces and enable us to maintain our gross profit margin in the approximate 50% range.”
Brady Corp Q4 2021 Earnings Call
Basic Materials
Comments from basic material companies go in line with what other industries are experiencing. Basic material companies experiencing cost inflation have passed on these higher costs to their customers.
“We are actively executing on price increases in response to robust demand and cost inflation. Since early June, we've announced 5 price increases.”
Greif Inc Q3 2021 Earnings Call
“It's certainly clear that inflation has been much higher than in previous years. I'm sure you don't need me to tell you that. We've been working really hard with suppliers to manage down the impact on our business and also with customers to offer them product changes and similar where possible. Our customers would expect us to take these actions, but there is of course still a significant net inflation that we need to pass on to customers. And we have some good contracts in place that allow us to do that. We've realized about 2.5% incremental revenue from our pricing actions, which is about $30 million in the half year. We're covering dollars of inflation so far this year, and we'll increase pricing throughout the year as it takes some time to implement the pricing with some accounts. Our approach, our objective, our strategy is to cut inflation on a percentage basis, and we're targeting getting there by the first half of next year, depending, of course, whether we get a further significant wave in inflation. We expect the impact of pricing actions to be greater in Q4 than Q3. That's just reflecting the time it sometimes takes to make the changes. And by Q4, we think we can get to mid-single-digit range for realized revenue, which is obviously going to be supportive of what we're doing on our margin profile.”
Diversey Holdings Ltd Q2 2021 Earnings Call
Real Estate
In real estate, American Homes 4 Rent has seen significant inflation of about 10% in labor and materials.
“I'll start with the labor and materials. We are seeing some inflationary pressures on both. I think the most of the obvious areas would be materials such as appliances and so forth, where we're seeing inflation in the 10% range. Our procurement teams, our purchasing teams have done a fantastic job of helping to protect us from those increases, with national contracts, really exceptional processes. And the most important factor really is that we are trying to do more and more in-house. A lot of that in those inflationary pressures are in relation to third-party maintenance and turn vendors. So we've been able to handle more work in-house and protect ourselves from some of those cost increases.”
American Homes 4 Rent Q2 2021 Earnings Call
If you would like to find more incredible insights on company earnings calls, use the Fincredible Earnings App. And if you want to receive e-mail notifications with our next Fincredible Transcript or share this with your friends, click the buttons below.
As always, feel free to e-mail us at analyst@fincredible.ai with any comments, inquiries, or whatever you feel like sharing.