Businesses also face inflation. Here are 3 that cannot pass on costs yet.

General Mills anticipates inflationary pressures in the coming months.

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As inflation drives up costs for businesses, pressure is mounting to pass costs on to consumers. At the expense of earnings expectations and stock prices, however, many companies say they can’t raise prices immediately.

‘Cost pressures’ have ‘hit the ground’ in recent months, and some stocks have seen single-digit decline after earnings due to the reported timing gap between those higher costs and their future price increases compensatory “, writes Chris Harvey, head of equity strategy at

Wells fargo.

Indeed, costs are rising for businesses across the board and show little sign of slowing down as demand increases amid the economy reopening. The producer price index for June, a measure of wholesale inflation, rose 7.3% year-on-year from estimates of 6.8%. Companies are rushing to meet high demand by purchasing scarce materials and inputs.

To be sure, some companies are already passing on the costs, as the Consumer Price Index has also exceeded estimates this week, reflecting the rise in prices paid by households. But some companies are not able to immediately increase their prices aggressively, which is hurting their earnings forecasts and their stocks.

Wells Fargo has mentioned several companies that fit the description:



Conagra brands

(ticker: CAG): The packaged goods company lowered its projected earnings per share for fiscal 2022 to $ 2.50 from $ 2.73. The stock is down about 5% since the July 12 close, just before the results are released. “Due to the time lag between when this inflation hits our P&L and when the benefits of our pricing and productivity actions take effect, we do not plan to fully offset the impact of these cost increases on time. to meet our previous BPA projections for fiscal 2022, ”the company said in its earnings call.



General Mills

(SIG): The food company said in its earnings call that the price hike would start around the second half of the year and EPS could drop 2% for fiscal 2022. The company cited “the environment inflationary costs “as one of the drivers of the poor earnings outlook when reporting its results. The stock is down 1.5% since its June 30 results.



McCormick

(MKC): The company lowered its 2021 adjusted gross margin forecast to 0.9% in the middle of its range, citing “cost inflation” as a factor in its earnings call. “To compensate for rising costs, we increase prices where necessary, but there is usually a lag associated with pricing. »The magnitude of the price increases will not be taken into account until the end of the year. The stock is down about 2% since the July 1 results.

For investors, it will therefore pay off to watch for companies that manage to raise their prices later this year.

Write to Jacob Sonenshine at [email protected]


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