The market continues to be concerned about higher inflation. Consumer prices increased 6.2% in October, which was the largest year-over-year increase since 1990. Producer prices rose 8.6% in October, which marked a tie with the previous month (September) for 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, have more S&P 500 companies than normal commented on inflation during their earnings conference calls for the third quarter? 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 the S&P 500 companies that conducted earnings conference calls from September 15 through November 12.
Of these companies, 285 cited the term “inflation” during their earnings calls for the third quarter, which is well above the five-year average of 137. In fact, 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 222, which occurred in Q2 2021. It is also important to note that there are still about 40 S&P 500 companies that have not reported actual earnings yet for the third quarter, so the final number for the quarter will likely finish even higher.
At the sector level, the Industrials sector had the highest number of companies that cited “inflation” on earnings calls for Q3 at 51, followed by the Financials (44), Consumer Discretionary (34), and Health Care (34) sectors. However, the Materials (89%), Consumer Staples (88%), and Energy (86%) sectors had the highest percentages of companies that cited “inflation” on their Q3 earnings calls from September 15 through November 12.
Given the high number of S&P 500 companies that have cited “inflation” on Q3 earnings calls, have net profit margin expectations for Q4 been revised? The estimated net profit margin for the S&P 500 for Q4 is 11.8%, which is below the (near record-high) net profit margin of 12.9% reported in Q3 2021. It is also slightly below the estimate of 11.9% recorded on September 30. Six sectors have seen an increase in their Q4 net profit margin estimates since September 30, led by the Energy (to 9.5% from 7.2%) sector. On the other hand, five sectors have seen a decrease in their Q4 net profit margin estimates since September 30, led by the Consumer Discretionary (to 5.2% from 6.2%) sector.
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