Succinct Summary: Inflation and supply chain issues continue to be key themes across the globe. Unfortunately, there are no signs that either problem is getting better, but policymakers continue to be optimistic that we’re seeing transitory challenges.
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Macro:
There’s unprecedented inflation right now
“We’re looking at unprecedented inflation, as all of industry is right now. We’re going to have to manage our way through this time of cost inflation, just as we have in the past. It’s going to be a mix of price increases, unfortunately, and also cost-effectiveness through our [comprehensive continuous improvement] program." - McCormick (MKC) CEO Lawrence Kurzius
"So for inflation today, we anticipate for the full '22 fiscal year overall inflation to be somewhere in the high teens, call it, 17%, 18%, 19%. Today, as we sit here year-over-year, inflation includes labor and freight, but mostly material-driven is 30% higher. And a lot of that's driven by materials." - RPM International (RPM) CEO Frank Sullivan
US policymakers still expect this to be transitory but may not end anytime soon
"You know, we have been hit by an incredibly unusual shock and in the one hand, we’re almost 6 million jobs short of where we were before the pandemic which means a lot of people who still need jobs. On the other hand, many firms are finding it difficult to hire. We’ve had extraordinary shifts in the pattern of demand, away from services and toward goods, and I know the Fed is trying to sort through the implications of that supply. Bottlenecks have developed that have caused inflation. I believe that they’re transitory, but that doesn’t mean they’ll go away over the next several months." - US Treasury Secretary Janet Yellen
Companies are rising prices to try to offset input cost increases
"There’s definitely inflation and getting access to resources is not as easy as it was before. And with the labor shortage, we’re finding ourselves in the market that’s easier for employees and harder for employers...So there’s definitely inflation on our side and our restaurants labor cost is a certain amount of pressure for MTY or franchisor as well. And then you look at our suppliers and they’re facing the same thing. Their suppliers are increasing their prices. They have to pay people more to have access to them and they face inflation as well. So it goes throughout the supply chain and there’s inflation at every step of the way." - MTY Food Group (MTYFF) CEO Eric Lefebvre
"I expect we’ll probably see a little bit more pricing increases in the first quarter of next year as we deal with the fact that input costs are just higher…That’s just the reality for us and everybody else.” - PepsiCo (PEP) CFO Hugh Johnston
"…we have taken pricing over the last 12-months in anticipation of costs going up, and that's part of the reason we're seeing these incredible gross margins over the last couple of months, as we priced ahead of some of these inflationary pressures hitting us." - Levi Strauss (LEVI) CEO Chip Bergh
But margins may suffer
"I’m expecting that gross profit will be unfavorably down compared to last year in the second half of the year because we won’t be able to offset everything that’s coming with price increases. So we will see a little bit of gross profit erosion, I think, due to it." - Helen of Troy (HELE) SVP, Corporate Finance Matt Osberg
"Gross margin as a percentage of net sales was 33.4% during the first quarter of fiscal 2022, down slightly from 34.0% during the first quarter of fiscal 2021. The decrease in gross margin was related to increased freight costs that is impacting many companies across the global supply chain." - Richardson Electronics (RELL) General Manager, Canvys Jens Ruppert
Consumers don’t seem to be price sensitive
"What we're seeing across the world is much lower elasticity on the pricing that we've seen historically. And that applies to developing markets, Western Europe and the U.S. So across the world, consumer seems to be looking at pricing a little bit differently than before…as consumers are shopping faster in store and they might be paying less attention to pricing as a decision factor and they might be giving more relevance to the brands or brands that they feel more a bit closer to or more close -- yes, I would say, closer more and more emotionally attached to our brand. So we're seeing less elasticity and we're adjusting our models as we go. And that's obviously informing our decisions as we price balance of the year and into 2022." - PepsiCo (PEP) CEO Ramon Laguarta
International:
Consumer demand is strong in Europe.
"…consumer demand in Europe remains strong with the region inflecting to growth, up 7% versus 2019 as stores reopened. This, despite tourism being down markedly in both the U.S. and Europe." - Levi Strauss (LEVI) CEO Chip Bergh
The UK may tighten monetary policy sooner than expected
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COVID lockdowns continue to impact Asia
"In Asia, we are living quite some difficult circumstances with -- on our network. It's not that stable because of COVID and there's a lot of ports shutting down primarily on some of the Chinese rivers because of COVID cases, and of course, we've also just had the typhoon season. However, we see that the fundamentals are strong and are in place and particularly on the adjacent markets." - Stolt-Nielsen (SOIEF) President of Stolt Tankers Lucas Vos
"Asia’s performance in the quarter is largely driven by the fact that there were lockdowns, and continue to be lockdowns in different forms, in different countries around Asia. So if you think about our store base during the quarter, as we had 20% of our store base closed during the quarter. And I think if you look at the revenues we were down 23%, so a little bit of traffic softness, but it's essentially driven by lockdowns. And, as you think about the world, I'd say, the western part of the world, higher vaccination rates, the eastern part of the world, scaling up over time. So that's what's really driving the softer numbers in Q." - Levi Strauss (LEVI) CFO Harmit Singh
Beverage businesses bouncing back in Africa and the Middle East
"So India, Pakistan, Middle East, and Africa, clearly, they were challenged last year. They're coming back. It's a very beverage-focused business. So clearly, it was more impacted by the COVID mobility restrictions. So we're seeing those business coming back" - PepsiCo (PEP) CEO Ramon Laguarta
Financials:
Private Equity and high IPO valuations are making M&A tough
"We’re competing with the very hot IPO market. So there’s a certain standard that’s set and a certain expectation...The number of different players are rumored to be looking for IPO. So, obviously, when it comes to larger targets, we’re competing with private equities and we’re competing with IPO valuation." - MTY Food Group (MTYFF) CEO Eric Lefebvre
Banks are lending to restaurants again
"I think people are seeing now that restaurants are backed and it’s an investment that makes sense. It’s interesting that customers are there for the right brands. Banks are lending money again, where banks perceived restaurants, maybe as a little bit riskier a year ago and now we just need to figure out the supply chain and find people to build our stores and find the equipment to operate our stores." - MTY Food Group (MTYFF) CEO Eric Lefebvre
Mortgage rates are rising, which could lead to a housing slowdown
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Consumer:
A strong September in retail spending
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It's hard keeping up with the demand
"…unlike a year ago where we were very selective a what we produced this year we've been producing all skews. We've just had trouble keeping up with the demand. Our best estimate would probably be in the 2 to 3 percentage points that we lost in this process." - Constellation Brands (STZ) CEO William Newlands
“Across our business right now, the supply chain is really our limiting factor. Demand is extraordinarily high for all of our products both on the consumer side...but also for our flavor solutions and flavor systems business...Transportation and logistics issues, just getting the product from point A to point B, is our single limiting factor. It’s not demand. Demand is incredible.” - McCormick (MKC) CEO Lawrence Kurzius
Higher return to in-store shopping
“…even though COVID remains top of mind, many consumers are returning to in-person shopping compared to the previous year when COVID-related store closures accelerated the larger trend of brick-and-mortar sales that were shifting online." - Helen of Troy (HELE) CEO Julien Mininberg
Buy your Christmas tree early
“Every year, we pay close attention to factors impacting the Christmas tree industry so that we can help guide consumers in choosing the right Christmas tree. In 2021, we’re seeing a variety of trends influencing artificial and live Christmas tree supply across the country, and are encouraging consumers to find their tree early this year to avoid shortage impacts,” - American Christmas Tree Association Executive Director Jami Warner
New denim cycle
"The casualization trends, the new denim cycle, which I think I was the first to declare a couple of quarters ago. And I think we could say now quite confidently that these new looser fits, new silhouettes are definitely driving a new denim cycle." - Levi Strauss (LEVI) CEO Chip Bergh
Squid game is killing it on Netflix
“There's a show on Netflix right now that is the number one in the world like everywhere in the world it's called Squid Game. Squid Game will definitely be our biggest non-English language show in the world for sure. It's only been out for nine days and it's a very good chance it's going to be our biggest show ever -- I'll be honest with you, we did not see that coming in terms of its global popularity so to me it's like every time I look backward, what we predict in terms of how big something might be or how impactful something might be, even in our most audacious picking we're underestimating where things can go and how big things can be and how impactful they can be in the culture. So that's super encouraging, that's super exciting" - Netflix (NFLX) Co-CEO and Chief Content Officer Ted Sarandos
Technology:
Data is eating the world and AI is the only way to process it
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Cybersecurity is going to be the issue of this decade
"I had the privilege to be at the White House in August talking about this topic. And what I said there is, it's going to be the issue of this decade. The cost of cybercrime is rising every year. Estimates range from the hundreds of billions to trillions of dollars in terms of the impact, and that is what is driving demand for our solutions. Whether it's around threat intelligence, identity management, data security, incident response, device management, you can go on and on about the capabilities that are in high, high demand" - International Business Machines (IBM) CEO Arvind Krishna
"…no nation has supremacy in cyber yet, and they're all struggling to get more ahead on the offensive capabilities globally. the third thing we're seeing is the ransomware pandemic and that it's hit intolerable levels. Two years ago, we had a Cyber Defense Summit at Mandiant, where we discussed that it would take technology plus people plus diplomacy to address the cybersecurity challenge that every nation faces. Now we're recognizing that technology plus the people plus the diplomacy will equal a coordinated response. And that's what we're starting to see today with ransomware. Every single company is trying to figure out are we prepared and are we ready..." - Mandiant (MNDT) CEO Kevin Mandia
Multi-cloud is the new industry standard
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Industrials and Transport:
Supply chain challenges not going away any time soon
"…in terms of supply chain, I mean, it’s disrupted. I’m not sure how long it’s going to take to go back to normal. This is an unprecedented situation. So it’s hard to base ourselves on anything that happened in history to look at how it’s going to be resolved. But I do anticipate that supply chain is going to be a challenge for a certain amount of time." - MTY Food Group (MTYFF) CEO Eric Lefebvre
"…the Company is experiencing significant supply chain and logistics disruptions as well as material and freight cost inflation similar to other companies that are beyond the Company’s prior expectations. The unavailability of parts has impacted the Company’s ability to produce and ship units, particularly at Access Equipment, and has also contributed to labor inefficiencies." - Oshkosh (OSK) CEO John C. Pfeifer
"Our backlog at Canvys is at an all-time high. Customers continue to compensate for supply chain uncertainties. This is particularly true in the electronic components market. We are also dealing with ongoing extended lead times for selected components from our Asian suppliers." - Richardson Electronics (RELL) General Manager Canvys Jen Ruppert
"Due to the supply disruption, we lost the equivalent of nearly 300 production days across RPM facilities around the globe during the 2022 first quarter, more days that were lost due to COVID-related shutdowns in last year's first quarter. We estimate the negative impact on consolidated sales during this first quarter was about $200 million due to these challenges and disruptions, over half of which occurred in our Consumer segment. This was about double the negative sales impact we experienced in the fourth quarter of fiscal '21." - RPM International (RPM) CEO Frank Sullivan
“If you think about the semiconductor industry, we've always gone through cycles of ups and downs where demand has exceeded supply or vice versa. This time it's different and what's different this time is every industry needs more and so the confluence of that means that there is an imbalance. I will say that there's a tremendous amount of investment going on--over 20 new factories are coming online this year and 20 plus more in planning and so it's still going to be tight. This year is tight. The first half of next year is likely [to be] tight but it'll get better -- we're an industry that just takes a long time to get anything done so it might take 18 to 24 months to put on a new plant and in some cases even longer than that. These investments were started perhaps a year ago and so they're coming online as we go through the next couple of quarters” - Advanced Micro Devices (AMD) CEO Lisa Su
How companies are handling these challenges
"We long ago decided that we would not source more than 20% of our product from any one country. Our sourcing currently spans 24 countries. We did this to avoid concentrations to be less exposed to bottlenecks in production capacity, like what's going on currently with Vietnam, where our exposure is less than 4% of our global volume." - Levi Strauss (LEVI) CEO Chip Bergh
"We are seeing that customers are considering alternative option to move cargoes as port congestion and containership capacity constraints continue but not significant change occurred due to the cost of the change. So what we're saying -- what we have said in the previous years is that the tank container market is actually cannibalizing from tankers, but we are now seeing more and more inquiries actually customers considering because -- one thing is the cost, but it's also the unreliability of the timing because of the delays in the container lines we are seeing inquiry both for our terminals, where customers want to see if they can lease tanks so that they can ship it back in containers -- in our chemical carriers." - Stolt-Nielsen (SOIEF) CEO Niels Stolt-Nielsen
"Higher inventory also positioned us well to meet demand and better manage supply chain disruptions. We believe having more inventory on hand ahead of our busy season in Q3 and Q4 will help us meet consumer demand and meet customer expectations in the back half of this fiscal year. We have also made good use of our pre-negotiated sea freight contracts at rates considerably lower than the current elevated spot market." - Helen of Troy (HELE) CEO Julien Mininberg
Labor challenges are not going away either
"…in terms of our labor shortage, I mean, the demographic deficit that we’re facing throughout North America is nothing new and it’s going to be around us for a certain period of time. So again, there’s going to be a period of adjustments, but I don’t see that problem going away in the next few months. So we’re going to have to learn to live with it, find ways to be more efficient, find ways to offer good experiences to our customers with the amount of stuff that we have available and that’s all it is." - MTY Food Group (MTYFF) CEO Eric Lefebvre
Production is hard
"Man, it’s hard to build a factory. I’ve said many times that prototypes are easy. Production is hard. Like – or whatever, it’s like 1% inspiration, 99% perspiration" - Tesla (TSLA) CEO Elon Musk
Materials & Energy:
GM moving to more EV
"We will convert more than 50% of our manufacturing footprint in North America and China to EV production by 2030...A year ago, GM also announced an investment with EVgo to accelerate charging infrastructure build-out by adding 2,700 DC fast-charging stations with every site featuring 350-kilowatt chargers." - General Motors (GM) VP, Electric and Autonomous Vehicles Kenneth Morris
And adopting renewables
"And we just announced that we are advancing our commitment to source 100% renewable energy to power U.S. facilities from 2030 now to 2025." - General Motors (GM) CEO Mary Barra
Nuggets of Wisdom:
Internal execution and culture worries Netflix more than the competition
"…we really are competing with ourselves. The things that I'm most concerned with for the next decade is internal execution. Can we continue to operate as well with 10000 employees as we did with 2000 employees and then with 20000 employees operating around the world? I always tell people don't try to preserve the culture, try to evolve the culture to being better than it was last year. None of these things are in granite, so the idea that you can challenge something that used to work five years ago at Netflix is really an important part of the culture" - Netflix (NFLX) Co-CEO and Chief Content Officer Ted Sarandos