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60% of S&P 500 Companies Cite Negative Impact of Labor Costs on Q4 Earnings Calls

Earnings

By John Butters  |  January 14, 2022

While the majority of S&P 500 companies will report earnings results for Q4 2021 over the next few weeks, 4% of the companies in the index (20 companies) have already reported earnings results for the fourth quarter (through January 12). Given expectations for earnings growth of more than 20% for the fourth quarter, have these companies discussed specific factors that had a negative impact on earnings or revenues for the fourth quarter (or are expected to have a negative impact in future quarters) during their earnings conference calls?

To answer this question, FactSet searched for specific terms related to a number of factors (e.g. “currency,” “labor,” etc.) in the conference call transcripts of the 20 S&P 500 companies that have conducted fourth quarter earnings conference calls through January 12 to see how many companies discussed these factors. FactSet then looked to see if the company cited a negative impact, expressed a negative sentiment (e.g. “volatility,” “uncertainty,” “pressure,” “headwind,” etc.), or discussed clear underperformance in relation to the factor for either the quarter just reported or in guidance for future quarters. 

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Labor costs and shortages have been cited by the highest number of companies in the index to date as a factor that either had a negative impact on earnings or revenues in the fourth quarter, or is expected to have a negative impact on earnings or revenues in future quarters. Of these 20 companies, 12 (60%) have discussed a negative impact from this factor. After labor shortages and costs, COVID costs and impacts (10) and supply chain costs and disruptions (10) have been discussed by the highest number of S&P 500 companies.

It is interesting to note that despite the negative impacts cited by these companies, they reported aggregate (year-over-year) earnings growth of 27.7%. It appears most of these companies are raising prices to offset these negative impacts, as 17 of these 20 companies (85%) discussed increasing prices or improving price realization on their earnings calls.

It is also important to note that most of the companies used in this analysis have a fourth quarter ending in November. Thus, it is possible that an even higher percentage of companies may see a negative impact from COVID costs and impacts, as the most recent COVID wave did not hit the U.S. until December.

For a list of the S&P 500 companies that cited labor costs and other factors on their earnings calls, please click the link below to access the full FactSet Earnings Insight report. The list can be found on pages 30-35 of the report.

Listen to Earnings Insight on the go! In our weekly Earnings Insight podcast, John Butters provides an update on S&P 500 corporate earnings and related topics based on his popular Earnings Insight publication. The podcast is made available every Monday—listen on Apple podcasts, Spotify, or factset.com.

The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.

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John Butters

Vice President, Senior Earnings Analyst

Mr. John Butters is Vice President and Senior Earnings Analyst at FactSet. His weekly research report, “Earnings Insight,” provides analysis and commentary on trends in corporate earnings data for the S&P 500 including revisions to estimates, year-over-year growth, performance relative to expectations, and valuations. He is a widely used source for the media and has appeared on CNBC, Fox Business News, and the Business News Network. In addition, he has been cited by numerous print and online publications such as The Wall Street Journal, The Financial Times, The New York Times, MarketWatch, and Yahoo! Finance. Mr. Butters has over 15 years of experience in the financial services industry. Prior to FactSet in January 2011, he worked for more than 10 years at Thomson Reuters (Thomson Financial), most recently as Director of U.S. Earnings Research (2007-2010).

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The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.