61% of S&P 500 Companies Cite Negative Impact of Labor Costs on Q2 Earnings Calls

While the majority of S&P 500 companies will report earnings results for Q2 2022 over the next few weeks, 4% of the companies in the index (18 companies) have already reported earnings results for the second quarter (through July 8). Given current expectations for single-digit earnings growth for the second quarter and the possibility of a recession, have these companies discussed specific factors that had a negative impact on earnings or revenues for the second quarter (or are expected to have a negative impact in future quarters) during their earnings conference calls?

Searching for Specific Terms in Conference Call Transcripts

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 18 S&P 500 companies that conducted second quarter earnings conference calls through July 8 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.

Labor costs and shortages have been cited by the highest number companies in the index to date as a factor that either had a negative impact on earnings or revenues in Q2, or is expected to have a negative impact on earnings or revenues in future quarters. Of these 18 companies, 11 (61%) have discussed a negative impact from this factor. After labor shortages and costs, supply chain costs and disruptions (10) have been discussed by the second-highest number of S&P 500 companies.

Four factors witnessed an increase in the number of companies citing a negative impact relative to the previous quarter: the military conflict in Ukraine (+3), lockdowns in China (+2), rising interest rates (+2), and unfavorable foreign currency exchange (+2). These increases occurred despite that fact the fewer companies were surveyed for Q2 2022 (18) relative Q1 2022 (20) at the same point in time in the earnings season.

It is interesting to note that despite the negative impacts cited by these 18 companies, they have reported aggregate (year-over-year) earnings growth of 11.0% and average (year-over-year) earnings growth of 8.5% for Q2. Both of these numbers are above the current (blended) earnings growth rate of 4.3% for Q2 for the index as a whole. It appears that most of these companies are raising prices to offset these negative impacts, as 16 of these 18 companies (89%) discussed increasing prices or improving price realization on their earnings calls.

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 and see pages 35-41.

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