Inflation surge in focus during S&P 500 firms' earnings calls
197 of the S&P 500 companies discussed inflation on earnings conference calls, a 10-year high
Has the market settled on inflation being transitory?
Kaltbaum Capital Management President Gary Kaltbaum, Ladenburg Thalmann Asset Management CEO Phil Blancato and Hedge Fund Telemetry Strategist Tracy Shuchart discuss inflation and the impact of printing more money on the economy.
Consumer prices have surged in recent months – and executives at S&P 500 companies are taking notice.
During the first-quarter earnings season, from about mid-March through mid-June, 197 of the S&P 500 companies discussed inflation on earnings conference calls, the highest number at least a decade, according to new data published by FactSet.
Despite the rising prices, however, FactSet analyst John Butters noted in the report that many companies are actually raising expectations for profit margins and net earnings over the past three months. For the entire S&P 500, the estimated earnings growth rate – 34.8% vs. 24.9% – and estimated net profit margin – 12.1%vs. 11.4% – are higher than compared to March 15, before inflation fears took hold.
YELLEN SAYS INFLATION WILL BE HIGHER THAN BIDEN ADMINISTRATION ESTIMATED
"It does not appear higher inflation is having a negative impact on full-year earnings and net-profit margins at the time," he said.
Still, 18 of 26 S&P 500 firms in the consumer staples sectored said they had already increased the prices of their products, or were willing to do so, in order to offset the inflation spike. Notable companies that indicated they were willing to hike prices include: General Mills, Coca-Cola and Hershey, among others.
Other companies also proposed lower costs and "improving productivity" in order to mitigate the effect of higher inflation on their bottom line, according to the report.
CONSUMER PRICES SURGE 5% ANNUALLY, MOST SINCE AUGUST 2008
In May, consumer prices climbed 5% compared with a year earlier, the largest increase in 13 years, according to Labor Department data. Most of the price gains have occurred in places like used cars, airplane tickets and hotel rooms.
And last week, the Federal Reserve signaled that rising inflation may force it to increase the benchmark interest rate twice in 2023, an earlier time frame than policymakers had projected in March, when no hike was expected until at least 2024.
Still, most economists have maintained the increase is temporary, the result of supply bottlenecks, distorted data due to a dramatic drop in prices last year and pent-up Americans looking to resume normal pre-crisis activities.
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"I will say that these effects have been larger than we expected, and they may turn out to be more persistent than we have expected," Federal Reserve Chairman Jerome Powell said Tuesday while testifying on Capitol Hill. "But the incoming data are very consistent with the view that these are factors that will wane over time, and inflation will then move down toward our goals and we’ll be monitoring that carefully."