Text size
Shipping containers are stacked at the Port of Los Angeles on Nov. 30 in San Pedro, Calif.
Mario Tama/Getty Images
Inflation and supply-chain disruptions were hot topics during companies’ earnings calls last quarter. But seeing the big picture remains elusive for analysts, no matter how many calls they hop on.
Technology might help solve that. Strategists Nomura applied natural-language processing techniques to analyze all the earnings calls of Russell 1000 companies since 2007—a whopping 24 million sentences and a nearly impossible task for human beings. What did they find? Companies’ sentiments on topics like inflation and supply chain are “more nuanced than commonly thought,” wrote strategist Joseph Mezrich in a Thursday note.
Despite all the hype, inflation might be less of a concern to individual companies than many fear, says Mezrich. From September to November, less than half of Russell 1000 companies actually discussed inflation during their earnings calls. About 65% of the companies talked about supply chain, in comparison. Still, both numbers have spiked in the past months.
Among the companies that did talk about inflation, about 70% expressed negative sentiment. That’s on par with historical levels, says Mezrich. “Even if inflation trends higher, some companies seem to feel they are positioned to handle it without damage to their financial performance, with some even hoping to benefit from it,” he wrote. In fact, the number of companies expressing positive sentiment on inflation—about 90 of them—reached its highest point since 2007. Others are simply mentioning it to show they are mindful of these issues, indicating neither concern nor optimism.
On the other hand, nearly 90% of companies that talked about supply chains expressed negative sentiment—an unprecedentedly high ratio that’s even more extreme than during the 2008 financial crisis. Interestingly, the increasing negativity over supply chain didn’t begin with the coronavirus pandemic—it started back in 2017 when the U.S. first became more hostile toward trading partners like China. The geopolitical conflict means that supply-chain issues may persist even after the pandemic’s impact has faded.
“Companies perhaps view themselves as resilient in the face of potential inflation changes for a variety of reasons, including pricing tools at their disposal,” wrote Mezrich, “However, fewer remedies are available to companies with supply-chain problems.”
So how is the market reacting to these sentiments? So far, it seems that companies with inflation concerns are being punished—meaning they performed worse than the Russell 1000 benchmark from January 2020 to November 2021—and those that are positive about supply chains are being rewarded.
Write to Evie Liu at [email protected]
