This earnings season, investors will hear two words over and over again—and they’re not “great quarter!”
Executives at S&P 500 companies have mentioned the phrase “supply chain” about 3,000 times on investor calls as of Tuesday, a tally that easily sails past last year’s then-record figure. A new milestone will certainly be set once the third-quarter earnings season concludes right around Thanksgiving. From Tesla to Target, the phrase has been uttered more often this year than even the buzzwords “synergy” and “value proposition” combined.
“Supply chain is taking center stage on earnings calls as the supply chain is a disaster,” Scott Mushkin, an analyst at R5 Capital, said. “Honestly, there is a chance the system breaks down during the holidays.”
There’s good reason for concern. Companies of all stripes are grappling with global shortages of everything from cars to cotton, held up by factory closures, port logjams and a dearth of truck drivers. The situation has worsened since the last time companies reported results over the summer, and a handful, like electrical giant Eaton Corp., have already warned Wall Street that their sales will be weaker than anticipated because of insufficient supplies. Paint maker Sherwin-Williams Co. cut its guidance twice in a three-week span.
With the holiday gift-buying season fast approaching, the supply-chain discussion has reached all the way to the White House. President Joe Biden plans to meet Wednesday with port officials as well as leaders from Walmart Inc. and Home Depot Inc. to discuss ways to alleviate the congestion.
“Holiday goods are waiting at the ports,” said Stephanie Wissink, an analyst at Jefferies who covers retailers and consumer-product companies. “For retailers and brands alike, it’s a race against the clock.”
In the coming weeks, expect to hear lots of supply-chain chatter on earnings calls as retail executives discuss how they’ve had to charter their own cargo vessels to bypass bottlenecks, or Apple Inc.’s management gets grilled by analysts about its iPhone 13 production targets. The discussion, experts said, won’t end anytime soon.
“I don’t believe we have hit peak in terms of how bad it will get,” said Brian Yarbrough, an analyst at Edward Jones.
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