The market continues to be concerned about higher inflation. Consumer prices increased 5.3% in August, which was the second-largest year-over-year increase since August 2008, trailing only the 5.4% (year-over-year) increases in the previous two months. Producer prices rose 8.3% in August, which was the largest year-over-year increase since the U.S. Bureau of Labor Statistics began tracking this measure in 2010.
In light of these high inflation numbers, did more S&P 500 companies than normal comment on inflation during their earnings conference calls for Q2? FactSet Document Search (which allows users to search for key words or phrases across multiple document types) was used to answer this question. Through Document Search, FactSet searched for the term “inflation” in the conference call transcripts of all S&P 500 companies that conducted earnings conference calls from June 15 through September 14.
Of these companies, 224 cited the term “inflation” during their earnings calls for the second quarter. This is the highest overall number of S&P 500 companies citing “inflation” on earnings calls going back to at least 2010 (using current index constituents going back in time). The previous record was 197, which occurred in Q1 2021. In addition, the second quarter marked the largest year-over-year increase (+160) in the number of S&P 500 companies citing “inflation” on quarterly earnings calls going back to at least 2010. At the sector level, the Industrials sector had the highest number of companies that cited “inflation” on earnings calls for Q2 2021 at 50, followed by the Consumer Discretionary (33), Financials (29), and Consumer Staples (27) sectors. However, the Consumer Staples (87%), Materials (75%), and Industrials (68%) sectors had the highest percentages of companies that cited “inflation” on their Q2 earnings calls from June 15 through September 14.
Given the high number of S&P 500 companies that discussed “inflation” on earnings calls for Q2, is inflation having a negative impact on expected earnings and profit margins for the full year? The answer appears to be no. Both the estimated earnings growth rate for CY 2021 (42.6%) and the estimated net profit margin (12.4%) for CY 2021 are higher today compared to the estimates back on June 30. At the sector level, ten of the 11 sectors are projected to report higher earnings and nine of the 11 sectors are predicted to report higher net profit margins for CY 2021 today relative to June 30.
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