CEOs Talk Inflation

We’re about three-quarters of the way through second-quarter earnings season, and there has been no hotter topic on earnings calls than inflation. Rising costs and their effects on prices and profit margins have come up on more than half of S&P 500 earnings calls in the past three weeks, based on a search of Sentieo transcripts. Corporate executives have been sharing what they’re seeing on the ground at their businesses in an inflationary environment—and what they expect will come next.

With earnings growth strong, there is a lot of good news for CEOs and CFOs to share. But managements’ outlooks have been more mixed.

Here are a few highlights from recent earnings calls on the topic of inflation:

Chipotle Mexican Grill (CMG) CEO Brian R. Niccol, July 20:

There’s so much going on right now with inflation and the question about whether inflation is transitory or permanent. We’ve got labor inflation. We took a big move there. We’ll see how that shakes out….Let’s see how the menu price [increase] continues to be accepted by customers. So far, really, really good, really seeing no resistance whatsoever….We’ve got a lot of upward mobility on our margins. We have pricing power. Now it’s just a matter of how and when we decide to use that pricing power, to either protect margins or to invest in our people like we just did with the wages.

Sherwin-Williams (SHW) SVP Jim Jaye, July 27: 

When we look at the basket, what we saw in the second quarter was the inflation being driven by higher costs for monomers, resins, solvents, and packaging materials.…We did guide here that we think the third quarter is going to be the highest year-over-year raw material inflation and only modest relief maybe in the fourth quarter.

Conagra Brands (CAG) CEO Sean Connolly, July 13:

We began implementing pricing actions on some of our products in the [fiscal] fourth quarter related to the initial inflation we experienced.…We expect the negative impact of the cost inflation to hit our financials before the beneficial impact of our responsive actions, including our pricing. This timing mismatch is expected to be particularly impactful in H1 and more specifically in Q1. The resulting pressure on our first half margins impact our full year profit.

Newmont (NEM) CEO Tom Palmer, July 22: 

50% of our cost is in labor, and we are seeing both in Canada and Australia quite hot labor markets for mining. There has been an uptick certainly in both those countries over the course of this year, and we expect to see that flow through at least all of next year. And then materials and energy make up the next 40% to 45% [of costs….] And we are seeing, in terms of steel and fuel and oils...the order of about 5%. We’re not seeing it structurally. We are seeing it as cyclical….And, of course, [inflation] does set us up nicely for some pretty positive gold price outlook.

Genuine Parts (GPC) CFO Carol Yancey, July 22: 

As we look at our inflation, it is a bit unique and unprecedented as it relates to the U.S. automotive industry. We haven’t seen this kind of [price increase] activity for a decade. It’s sort of similar to tariffs at the pace that they're coming. It is driven by a combination of raw materials, freight, and labor.”