S&P profits soar as companies pass inflation on to customers

Aug 11, 2021, 6:10 PM | Updated: Aug 12, 2021, 11:00 am

NEW YORK (AP) — How to cope with the higher inflation sweeping the economy? For Corporate America, the answer so far is simple: Raise prices.

Companies are charging more for everything from diapers to auto parts, more than covering their own higher costs. They’ve been so successful that analysts say big U.S. companies’ profit margins have never been higher.

As a result, quarterly profit reports from S&P 500 companies the last few weeks have blown past Wall Street’s expectations. That’s helping to support record high stock prices despite worries that valuations have shot too high and that the delta variant of the coronavirus could hurt the economy.

Consider meat producer Tyson Foods, which has had to contend with higher costs for grain to feed its chickens and other sources of inflation. Yet its profit still leaped 42% in its latest quarter over the prior year.

A big part of that was because its pricing for chicken rose 16% during the quarter.

“We’re just simply asking for fair market value for these products,” CEO Donnie King said

Across the S&P 500, such moves mean companies appear to have held onto $13 of profit for every $100 they made in sales during the spring. That would be the highest profit margin for a quarter since FactSet began tracking the measure in in 2008, and it’s well above the average of $10.60 for the past five years.

With companies making more profit on every sale, and with higher overall sales on top of that, earnings for S&P 500 companies last quarter are on track to have roughly doubled from a year ago. That would be the strongest growth since the economy bounced back from the Great Recession. About 90% of companies in the S&P 500 have reported their results for April through June.

This strength in earnings and profit margins is one reason strategists at Goldman Sachs recently raised their target for the S&P 500’s year-end level to 4,700, up from 4,300. That represents a nearly 6% rise from the index’s level this week.

The coast is not clear, though.

Executives are talking more often about having to raise pay for their workers, rather than just higher prices for commodities. That kind of inflation can be more difficult for companies to mitigate.

Mentions of labor-related inflation jumped 107% for the second quarter from a year earlier, according to BofA Global Research, which analyzed conference calls that CEOs conducted with analysts following their earnings reports. That was a big jump from the prior quarter’s 12% rise.

That may also be a reason why analysts are forecasting a slight squeeze on corporate profit margins during the second half of the year.

No one expects companies to keep doubling their profits. This past quarter was likely the easiest of the recovery to deliver such eye-popping year-over-year growth, because it came 12 months after the worst of the COVID-19 economic shutdowns.

But companies will need to keep delivering strong gains to justify the big moves their share prices have made. Stocks in the S&P 500 are trading at roughly 28 times the earnings-per-share they’ve delivered over the last 12 months. That’s a much more expensive valuation than they’ve been at historically.

If the Federal Reserve slows its bond-buying program and eventually raises interest rates, as much of Wall Street expects, current stock valuations would look even more expensive. Higher interest rates tend lower the price investors to pay for every $1 in earnings a company delivers.

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

AP

Associated Press

IS claims gun attack at Pakistan embassy that wounded guard

ISLAMABAD (AP) — The Islamic State group claimed responsibility for last week’s gun attack on the Pakistani embassy in Afghanistan in which the head of the mission escaped unharmed but a guard was wounded. In a brief statement late Saturday, IS claimed two of its fighters attacked “the renegade Pakistani ambassador and his guards” while […]
1 day ago
FILE - In this Tuesday, March 22, 2016 file photo, police and rescue teams are pictured outside the...
Associated Press

Survivors of Brussels suicide attacks seek closure at trial

BRUSSELS (AP) — Jaana Mettala was six months pregnant and on her way to work when the bomb exploded in the heart of Brussels’ European Union quarter. She suffered severe burns, but Mettala and her baby survived — 32 other people did not. It’s now more than six years since the deadliest peacetime attacks on […]
1 day ago
A man looks on as Mount Semeru releases volcanic materials during an eruption on Sunday, Dec. 4, 20...
Associated Press

Indonesia’s Mt. Semeru unleashes lava river in new eruption

JAKARTA, Indonesia (AP) — Indonesia’s highest volcano on its most densely populated island released searing gas clouds and rivers of lava in its latest eruption Sunday. Monsoon rains eroded and finally collapsed the lava dome atop 3,676-meter (12,060-foot) Mount Semeru, causing the eruption, according to National Disaster Management Agency spokesperson Abdul Muhari, citing information from […]
1 day ago
Participants get ready for the Miss Trans Northeast 22, beauty pageant in Guwahati, India, Wednesda...
Associated Press

AP PHOTOS: Pageant celebrates transgender life in India

GUWAHATI, India (AP) — Anilya Boro may not have won the crown at India’s Miss Trans NE pageant this year, but having her parents there in support was a validation in its own right. “I must prove to my parents that I can do something as a girl,” said the 22-year-old. “I didn’t win a […]
1 day ago
Associated Press

Today in History: December 4, the “Million Dollar Quartet”

Today in History Today is Sunday, Dec. 4, the 338th day of 2022. There are 27 days left in the year. Today’s Highlights in History: On Dec. 4, 1956, Elvis Presley, Johnny Cash, Jerry Lee Lewis and Carl Perkins gathered for the first and only time for a jam session at Sun Records in Memphis. […]
1 day ago
Associated Press

Saturday’s Scores

BOYS PREP BASKETBALL= Annie Wright 70, White River 63 Arlington 86, Camas 80 Auburn 83, North Kitsap 62 Bellingham 72, Granite Falls 43 Blaine 80, Bear Creek School 38 Brewster 77, St. George’s 62 Cascade (Everett) 66, Oak Harbor 57 Chiawana 65, Ferris 58 Chief Leschi 67, Evergreen Lutheran 35 Columbia (Burbank) 76, Cle Elum/Roslyn […]
1 day ago

Sponsored Articles

Comcast Ready for Business Fund...
Ilona Lohrey | President and CEO, GSBA

GSBA is closing the disparity gap with Ready for Business Fund

GSBA, Comcast, and other partners are working to address disparities in access to financial resources with the Ready for Business fund.
SHIBA WA...

Medicare open enrollment is here and SHIBA can help!

The SHIBA program – part of the Office of the Insurance Commissioner – is ready to help with your Medicare open enrollment decisions.
Lake Washington Windows...

Choosing Best Windows for Your Home

Lake Washington Windows and Doors is a local window dealer offering the exclusive Leak Armor installation.
Anacortes Christmas Tree...

Come one, come all! Food, Drink, and Coastal Christmas – Anacortes has it all!

Come celebrate Anacortes’ 11th annual Bier on the Pier! Bier on the Pier takes place on October 7th and 8th and features local ciders, food trucks and live music - not to mention the beautiful views of the Guemes Channel and backdrop of downtown Anacortes.
Swedish Cyberknife Treatment...

The revolutionary treatment of Swedish CyberKnife provides better quality of life for majority of patients

There are a wide variety of treatments options available for men with prostate cancer. One of the most technologically advanced treatment options in the Pacific Northwest is Stereotactic Body Radiation Therapy using the CyberKnife platform at Swedish Medical Center.
Work at Zum Services...

Seattle Public Schools announces three-year contract with Zum

Seattle Public Schools just announced a three-year contract with a brand-new company to the Pacific Northwest to assist with their student transportation: Zum.
S&P profits soar as companies pass inflation on to customers