More than 300 S&P 500 companies, in their latest annual reports, say they will hire more people this year than at any time in the past three decades and about 50% more than the second-best year. high of 2020, according to data compiled by Bloomberg.
This was before the United States and its allies reacted to the Russian invasion of Ukraine with sanctions that will surely disrupt the global economy. Uncertainty is a given.
Yet five days after the assault began, Target Corp. surprised analysts last Tuesday with strong fourth-quarter earnings and prospects for higher operating profit and revenue. The Minneapolis-based general merchandise discount chain, whose shares rose 13.5% before the market opened that day, the most in three years, even had an optimistic response to fears that the inflation devastates its bottom line.
“We definitely see the inflationary cost pressure,” Target CFO Michael Fiddelke said in an interview with Bloomberg TV. “We have many levers to pull within our business to ensure that we are protecting value for our customers. Price is the lever we pull last.
Confidence even persists with JPMorgan Chase & Co. CEO Jamie Dimon warning that disconnecting Russian banks from the SWIFT global messaging system could lead to “unintended consequences”. Kohl’s Corp. CEO Michelle Gass didn’t back down on Tuesday when she said the retailer remains “extremely confident in the future growth and cash flow generation of our business,” in response to questions about the rising prices and Russia’s invasion of Ukraine.
It’s never hard to find worried CEOs, and some pundits have. Costs are rising and sanctions against Russia add to the atmosphere of uncertainty.
But for every business executive overwhelmed by the challenges of a turbulent time, there are many more who exude the confidence of John Morikis, president and CEO of Cleveland-based Sherwin Williams Co.
“We also continued to invest in multiple long-term growth initiatives during the year, including opening 79 paint stores in the United States and Canada and hiring approximately 1,400 management trainees,” said Morikis to shareholders on January 27.
Tom Toomey, president and CEO of Colorado-based real estate investment firm Highlands Ranch, UDR Inc., told analysts on a Feb. 8 earnings call: “Our results for the full year 2021 and same-store results compare very well to original guidance, and operating strength has been sustained through 2022. Our outlook for 2022 points to one of our best years ever.
Johnson Controls International, the Milwaukee-based manufacturer of building products including air systems and fire safety solutions, is “well positioned for accelerated growth as we leverage our OpenBlue Digital platform to capitalize on the global trend to reduce carbon emissions and energy intensity and improve the overall health of indoor environments,” said Chief Financial Officer Olivier Leonetti.
Evidence that business leaders are putting their money where they say it is reflected in the surge in capital spending on business investment by the S&P 500 companies: $800 billion in the past 12 month, a record 12% gain in 2021 that will be surpassed this year, according to data compiled by Bloomberg.
It’s an expression of confidence that clashes jarringly with fear of inflation highlighted by the University of Michigan’s consumer confidence index, which fell to its lowest level since 2011, a year when CEO and consumer confidence fell in tandem. The current divergence is the widest in modern times, according to data compiled by Bloomberg.
But with price increases outpacing wage gains, the contrast between consumer pessimism and executive optimism is understandable. “Skyrocket inflation isn’t bad news for everyone,” Bloomberg chief economist Tom Orlik said. For companies with market power, Orlik explained, “higher prices mean higher profits – a factor that explains CEO confidence.”
Still, there are reasons to expect consumer gloom to lift. Retail sales wouldn’t be booming if people couldn’t make ends meet, and most workers today are paid more per hour than before the pandemic, even after inflation.
The economic recovery from the Covid-19 recession is stronger and faster than since the Great Recession that ended in 2009. US personal income grew 7.5% in 2021, the strongest annual growth since 2000 , according to Bureau of Economic Analysis data compiled by Bloomberg.
Adults in the bottom half of the income distribution had much higher incomes in 2021 than their previous three years; income poverty was lower in 2021 and the share of uninsured low-income people under 65 fell in 2021.
This is why consumer fear is likely to fade as trade predictions become reality.
Tyson Foods Inc., the Springdale, Arkansas-based meatpacking giant, has seen its gross margin rise from 12% to 14% in the past three years, allowing the chicken processor to process $100 of revenue into $14 of profit after the cost of raw materials, labor and other production expenses, according to data compiled by Bloomberg. By this measure, Tyson became the most profitable since 2000 with the magnitude of its sales growth exceeding its inflation costs.
Ravi Saligram, CEO of Atlanta-based retailer Newell Brands, which includes Rubbermaid, Mr. Coffee and Yankee Candle, told shareholders Feb. 11, “I’m proud of how our team navigated a challenging operating and inflationary environment. , generating more than 12% growth in base sales and normalized operating profit. »
Corporate America, in some ways, is the healthiest it has ever been. Even with record borrowing in recent years, the debt-to-total assets ratio of S&P 500 companies fell to 23.5%, about the lowest in three decades and well below the average debt-to-assets ratio since 1990 of 31, 2%, depending on the data. compiled by Bloomberg. Meanwhile, total earnings per share for the S&P 500 hit a record high of $191, more than double its $95 at the end of 2020, according to data compiled by Bloomberg.
No wonder Standard & Poor’s has upgraded 1,130 U.S. corporate bond issuers over the past 12 months and downgraded just 543. The ratio, including 2.3 so-called bond upgrades of high yield junk for each downgrade, is the highest for at least 10 years.
Whatever happens in 2022, CEOs are unlikely to have too much trouble getting by.
(Corrects spelling of Newell Brands in 21st paragraph.)
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Matthew A. Winkler is co-founder of Bloomberg News (1990) and editor emeritus; Bloomberg Opinion Columnist since 2015; Co-founded the Bloomberg Business Journalism Diversity Program in 2017. In his 25 years as editor, Bloomberg News has been a three-time finalist and winner of the Pulitzer Prize for Explaining Reporting and has received numerous George Polk, Gerald Loeb, Overseas Press Club Award and Society of Professional Journalists and Editors (Sabew).