Inflation on the Agenda

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 S&P 500 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, of course, prompting a surge in bond yields since the start of the year.

Companies are beginning to or soon expect to feel inflation in their input costs, which is prompting many to pass those along to their customers by lifting their prices. Wage inflation has come up at firms from burrito chain Chipotle Mexican Grill to car-parts wholesaler Genuine Parts. Copper-miner Freeport-McMoRan and airline Southwest Airlines both discussed higher energy and fuel prices on their first-quarter calls. And firms including oilfield services provider Halliburton and consumer-goods giant Procter & Gamble spoke about plans to pass higher input costs along to customers.

Here are a few highlights on the topic of inflation from S&P 500 earnings calls over the past few weeks:

Coca-Cola CFO John Murphy, April 19: “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.”

PPG Industries CEO Michael McGarry, April 16: “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 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 sub-brand, in the range of mid- to high-single digits.”

Chipotle Mexican Grill CFO Jack Hartung, April 21: “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.” 

Halliburton President and CEO Jeff Miller, April 21: “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.”

Freeport-McMoRan CEO Richard Adkerson, April 22: “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 (GPC) President William Stengel, April 22: “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.”

Southwest Airlines CFO Tammy Romo, April 22: “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.”

Whirlpool CFO Jim Peters, April 22: “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.”