Through the first earnings season this year, fewer CEOs are talking about inflation in earnings calls. When they do, though, it's a problem and there's a plan on how to fight it.
Financial data company FactSet reviewed the earnings transcripts of all S&P 500 companies that reported earnings through May 17 and found that 219 leaders at those companies mentioned inflation. That was down for the seventh quarter in a row but still above the 10-year average.
FactSet also noted that 24 S&P 500 companies mentioned inflation more than 10 times during their earnings calls, and Golden Valley-based General Mills had mentioned inflation the second most among those companies. That's not surprising, since consumer packaged goods, especially groceries, are under the microscope these days as consumers are tighter with their wallets.
Officials at Minneapolis-based Target — which faces the same consumer pressures as General Mills — said during an earnings call on May 22 they believe customers have been resilient but have a lot to worry about when it comes to their finances.
"Even as inflation moderates and we see sequential improvement in discretionary category trends, higher interest rates, uncertainty around the future of the economy, continued social and political divisiveness and the upcoming election cycle have consumers concerned about what lies ahead.," said Target Chief Growth Officer Christina Hennington. "In fact, consumer confidence took a meaningful dip in April despite a strong job market and normalizing inflation."
Over the past few quarters, company leaders have said customers were at the tipping point when it came to pricing. That means the companies had to rein in costs instead of raise prices in order to maintain profit margins since their own costs have gone up.
"We continue to see input cost inflation in fiscal 2024," said General Mills CEO Jeff Harmening on the latest earnings call. "While current inflation levels are lower than what we saw over the past two years, they are still higher than the average annual inflation rate we experienced in the decade leading up to the pandemic."
General Mills officials stressed cost reductions in manufacturing and other areas to offset the inflation pressures.
After two years of inflationary pressures, floor-cleaning machine maker Tennant is still keeping an eye on costs — even after reporting record financial results in 2023 and a strong start to 2024. Supply-cost increases are less than they were a year ago but still higher than expected, officials at the Eden Prairie-based company said during the last earnings call.
CEO Dave Huml said the company has had to work hard to mitigate the impacts of continuing inflation. "We are aggressively taking cost out of the business," he said.
For consumer-facing companies, new and cheaper products are part of the plan. Target lowered prices on 5,000 items. Sleep Number introduced a new smart bed at the lowest end of its price spectrum.
The mattress industry enjoyed robust sales during the pandemic from consumers focused on home improvements. But like other consumer goods companies, consumers' shift in spending back to activities and eating at restaurants has hurt Sleep Number.
Shelly Ibach, CEO of the Minneapolis-based company, reminded analysts in the most recent earnings call that "while consumer sentiment is showing signs of improvement, the consumers' purchasing power is limited due to elevated interest rates and record-high credit card debt."
Minneapolis-based Graco makes fluid-control systems for commercial and industrial customers, so its customers are less sensitive to inflation and interest rate increases, officials said. Still, it missed its first-quarter expectations.
Sales orders picked up in March and April, boosted by new product offerings, and CEO Mark Sheahan said he was confident sales would be back up by the end of the year. The company reaffirmed full-year guidance of low single digit sales growth.
"I don't really remember a time when we were as excited about the releases [than we are with those] coming out this year," Sheahan told analysts. "We're really encouraged by some of the feedback that we've gotten from customers in a couple of different areas."
The products include a new portable electric paint sprayer that officials said set new industry standards. Another is the TruMix XT applicator that can mix two-solution floor coatings at any ratio, freeing an employee from hand-mixing.
"Even if the economy is a little bit sluggish in homebuilding and some of the contractor markets, these are going to be great products for many, many years to come," Sheahan said.
Officials at Medina-based Polaris also said new utility vehicles for commercial customers helped the company at a time when it had to add more promotions to move its recreational ATVs, snowmobiles and boats.
If inflation does come under control and the Federal Reserve cuts rates late in the year Polaris officials believe it will provide some stimulus but even more mental relief to consumers, said Polaris CEO Mike Speetzen.
"I think you just see consumers continuing to be cautious and careful with how they're spending their money," he said in the latest earnings call. "And that just is going to prolong that replenishment cycle for our [recreation] business."