Good morning,
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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Big deal
Future Forum, a consortium launched by Slack with founding partners Boston Consulting Group, MillerKnoll and MLT, released the latest findings from its global pulse study. About 78% of knowledge workers (employees who acquire, manipulate, and analyze information) overall want location flexibility, according to the report. About 84% of men, globally, report they work in the office all or some of the time, compared to 79% of women. And 75% of working parents work remotely or hybrid, compared to 63% of non-parents, the research found. The findings are based on a survey of more than 10,000 knowledge workers in the U.S., Australia, France, Germany, Japan and the U.K.
Courtesy of Future Forum
Going deeper
Why Wall Street thinks the metaverse will be worth trillions, a new Fortune report by Bernhard Warner, explores why big business doesn't want to risk missing out on the tech trend. "The Wall Street bull case for the metaverse is an expansive one," Warner writes. "It’s a bright new marketplace for retailers and consumer brands to reach a global customer base. It’s a domain where entertainers can sell out performances, COVID or not. The tech creates a way to bring in specialists to remotely troubleshoot glitches in big industrial equipment, or to onboard new hires. And it’s a place where white-collar information workers can gather to brainstorm and pitch big ideas, including—who knows?—the next new metaverse stock."
Leaderboard
Chris Suh was named CFO at Electronic Arts Inc. (Nasdaq: EA), effective March 1. He will replace Blake Jorgensen, who previously announced he is stepping down. Suh joins the company from Microsoft, where he currently serves as corporate vice president and CFO of the Cloud + AI group. He has more than 25 years of experience at Microsoft. Previously, he was general manager of investor relations, and also served in a wide variety of finance leadership roles. Before joining Microsoft, Suh spent four years at PricewaterhouseCoopers.
Maggie Sun was named CFO at both CTH Group, a blockchain and digital asset company, and its sister company, Atlas Technology Management Pte. Ltd. Sun has more than 20 years of global experience in finance operations and capital markets advisory. Before joining CTH, she was a partner in the Operating Group of SoftBank Investment Advisors ("Vision Fund"). Prior to that, she was a partner at Ernst & Young and PwC.
Overheard
“In any transition, there is a danger that you underestimate your challengers.”
—Herbert Diess, CEO, Volkswagen, on the company's transition away from the internal combustion engine and toward battery-powered EVs, as told to Fortune.
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