What the CFOs of 3M, Kimberly-Clark, Whirlpool and Caterpillar are saying about inflation

Wall Street predicts the Federal Reserve will issue as many as seven interest rate hikes this year to quell inflation. Over the past year, inflation has been so much of a concern for business leaders that it’s a recurring hot topic on earnings calls. 

A Gartner analysis of S&P 1200 earnings call transcripts from Q3 2020 through Q3 2021 found the number of companies mentioning inflation increased from around 350 to just under 700. This uptick lead to an “eightfold rise in keywords relating to inflation from around 850 to 7,000,” according to the Jan. 26 the report. 

A world shaped by supply, BlackRock’s January 2022 macro and market perspectives report, found limitations on supply have driven the surge in inflation over the past year. Here’s what the CFOs at Fortune 500 companies, 3M, Kimberly-Clark Corporation, Whirlpool, and Caterpillar, had to say about inflation during their recent Q4 2021 earnings calls: 

Jim Peters, CFO at Whirlpool, a manufacturer of home appliances

“We expect our business to be negatively impacted by $1 billion to $1.25 billion in raw material inflation, led by higher steel and resin costs. As we already began to realize a significant cost increase in the latter portion of 2021, the largest year-over-year impact is expected during the first half of the year, particularly in Q1. On a full year basis, inflation is fully offset by our price mix actions.”

Monish Patolawala, CFO at 3M, a manufacturer of home improvement products, safety items, and consumer electronic components

“We’ve tried to fine-tune our analysis as much as we can on inflation. So, what we saw exiting December was the pace of inflation slowed down versus the prior months. It’s still inflationary, but we saw the pace slow down. And I think that’s a positive. But again, it will depend on how winter plays itself out, it depends on logistics, and whether the ports get uncongested … From an inflation perspective, you’re going to find not just us, but most companies have the highest – the toughest comp because if you remember, in the first quarter of last – of ‘21, there wasn’t as much inflation. We started seeing it in March and then it accelerated in April onwards.”

Maria Henry, CFO at Kimberly-Clark Corporation, a manufacturer of paper-based consumer products

“Let me spend a minute on our inflation outlook for 2022 … it continues to have volatility around it. For perspective, if we had given you our outlook on the October call, we would have been $300 million lower than the outlook that we’re providing today. And we’re kind of calling it at a tough part of the cycle, hence, the range around it. But let me talk about what we see. Approximately half of the inflation for 2022 is expected to come from distribution and energy. And then of the raw material component, the inflation will be led by polymer-based purchase materials …Two areas that will make up our commodity inflation: number one is what happens with market prices, and the second one is how inflation — commodity inflation flows through our P&L.”

Andrew Bonfield, CFO at Caterpillar, a construction machinery manufacturer

“Acceleration in freight, manufacturing inefficiencies and material costs drove the manufacturing cost increases. The freight costs included both inflation and standard rates and the increased use of premium freight … Material cost increases and sharply rising freight costs negatively impacted Energy & Transportation’s margins more significantly than they did for the machine groups.”

The CFOs expect to see further volatility around rising costs and supply chain issues. Gartner suggests finance chiefs account for the higher level of uncertainty as they set budgets.

See you tomorrow.

Sheryl Estrada
sheryl.estrada@fortune.com

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