One area that is providing a hint that inflation seems to set to increase is the change in commodity prices. As the below table shows, many commodity prices have seen significant increases over the past year.
Click to enlarge:
|From The Blog of HORAN Capital Advisors|
Aside from investors allocating a portion of their portfolio in inflation protected assets like TIPS or commodities themselves, certain companies can benefit from these higher commodity prices. The key is the company needs to have the ability to pass on these higher cost to its customers.
Those companies that are in the beginning or intermediate stage of the production cycle have the best opportunity to pass along these higher costs. Those companies that sell to individual consumers are having the most difficulty in passing along these higher prices though. A recent Thomson Reuters report highlights several comments from recent company earnings reports.
As anticipated, our first quarter operating income came in below the prior-year period. We see our price increases coming through across the board, but in the first quarter they still lagged sharply increasing commodity prices.
We are confident that the additional price increases we have announced will mitigate commodity inflation for the full year.
We also continue to execute against our capital plans with further share repurchases and the successful refinancing of $800 million of debt at an attractive rate in the first quarter.
-Sara Lee Corp's F1Q2011 earnings call transcript (Nov 10. 2010)
Commodity costs are now expected to have an unfavorable impact on EPS of approximately $0.08 to $0.10, attributable primarily to higher coffee costs.
The company’s EPS expectation noted above reflects the impact of higher commodity costs.
- Starbucks' F4Q10 earnings call transcript (Nov 4, 2010)
"Our long-term perspective in managing our business is backed by a strong financial position that provides the ability and flexibility to capitalize on opportunities that support our strategy," added Richard Smucker, Executive Chairman and Co-Chief Executive Officer. "As we look ahead, we anticipate that marketplace dynamics, including escalating commodity costs, will continue to present challenges. However, we are confident in the ability of our team to execute our strategy and address these obstacles."
- J. M. Smucker Company's Q2 2011 earnings call transcript (Nov 18, 2010)
The outlook for nitrogen and phosphate fertilizers is very favorable. Historically high grain prices and low grain stocks support high planting expectations and optimal fertilization practices.
- CF Industries Holdings' Q3 2010 earnings call transcript (Nov 4, 2010)
Sales revenue for third quarter 2010 was $1.7 billion, a 29 percent increase compared with third quarter 2009 primarily due to higher sales volume and higher selling prices. The higher sales volume was attributed primarily to improved end-use demand in packaging, durable goods, and other markets and the positive impact of growth initiatives. The increase in selling prices was in response to higher raw material and energy costs.
- Eastman Chemical's Q3 2919 earnings call transcript (Oct 28, 2010)