CEO says they are raising prices, cutting costs as inflation dominates post-earnings talks

Goldman Sachs CEO David Solomon set the tone at the start of this earnings season when he said inflation had “deeply penetrated” the US economy and was affecting conditions on multiple fronts.

Since then, company leader after company leader has expressed a similar sentiment.

Most say they’ve managed to navigate tough times driven by inflationary pressures at their highest in more than 40 years. They try to cut costs, raise prices, and generally optimize models for further uncertainty.

Tesla founded by Elon Musk Was practically apologetic on his company’s earnings call for raising prices to meet higher costs.

“So it looks to me like we’ve raised our prices. Well, we’ve raised our prices several times. They’re obviously at embarrassing levels,” the Mercurial electric vehicle pioneer told analysts. “But we’ve also had a lot of supply chain and production shocks, and we’ve got crazy inflation. So I hope, it’s not a promise or anything, but I do hope that at some point we can lower prices a little bit.” “

However, nothing seems certain at the moment, except that inflation is on everyone’s mind.

So far, of the 91 S&P 500 companies that have reported inflation, 85 have been mentioned on analyst calls, according to a search by FactSet Transcript.

Like Musk, company executives generally expect inflation, as measured by the Consumer Price Index, to fall below the 8.6% quarterly growth rate a year ago. CPI up 9.1% in JulyHighest number since November 1981.

But they are not taking any chances, using pricing power to strengthen their top and bottom lines amid a highly uncertain environment.

“Our primary response to the environmental challenge of inflation is high pricing,” said Michael F. Klein, president of personal insurance for Dow Component. passenger, “We are pleased with our actions to increase rates over the past few quarters and are confident in our ability to achieve further growth.”

Higher prices certainly haven’t hurt profitability, the results of which have been countering so far. generally pessimistic attitude Earnings season on Wall Street.

According to Refinitiv, of the S&P 500 companies that nearly 20% have reported so far, 78% have surpassed profits estimates, up 6.3% from a year ago. The beat rate on the revenue side is 72.5% with sales of 11.3%.

While energy companies have given the overall top and bottom line a big boost, the overall sentiment is that cash-rich consumers are better able to handle the burden of rising prices, at least for now.

“We have been and continue to be able to pass on our product cost inflation to our customers, and they are increasingly finding ways to pass it on to their consumers,” said cisco Chief Financial Officer Aaron Alt. “We believe that will certainly continue to be the case here and now.”

economists are concerned that an impending recession consumer can reduce spending which has been persistent but below inflation rate,

Citigroup CEO Jane Fraser said the company is focusing on what it calls the “three bucks”: Russia, rates and recession.

Russia’s invasion of Ukraine A contributor to supply chain difficulties has been increased inflation, which the Federal Reserve is trying to reduce through aggressive interest rate hikes. rate hike are aimed at slowing an economy that contracted 1.6% in the first quarter and is on track to shrink by the same amount in Q2, according to Atlanta Fed Estimates,

Still, Fraser said he thinks the US will avoid an official recession or at least a deep recession, even if two consecutive quarters of negative growth fits the rule-of-thumb definition. The National Bureau of Economic Recession is the official mediator on recession and expansion.

“When you have a consumer with strong health and such a tight labor market, it’s an unusual situation to enter this choppy environment,” Fraser said on Citi’s earnings call. “And I think that’s where you hear that a lot of us aren’t so worried about the impending recession. [United] State.”

But Goldman CEO Solomon said the company is playing it safe, although its economists expect inflation to return in the second half of the year.

“I think our tone is cautious because the environment is uncertain. The environment is very uncertain,” he said. “There is no question that economic conditions are tightening up to try to control inflation, and as economic conditions strengthen, it will also have a major impact on corporate confidence and consumer activity in the economy. I think That it’s hard to predict how it will play out, and so I think it’s prudent for us to be cautious.”