Inflation is everywhere. It's in our lives and in the news. Americans have become fixated on it. So has the financial media. And the companies that report earnings are now starting to outline just how much rising costs are affecting their businesses.
That's why it's important to listen for perspectives from different parts of the economy. Not every company will be impacted the same. But digging into comments by the leaders of HCA Healthcare (HCA +1.05%), Domino's Pizza (DPZ 0.73%), and Visa (V +1.05%) paints a clear picture.
Image source: Getty Images.
Wages are rising
There is no doubt that companies are having to pay more to keep current employees and attract new ones. A recent survey by Willis Towers Watson showed budgets for labor increasing by 3.4% this year.
HCA Healthcare is in an especially tough spot because most of its employees -- specially trained clinicians and caregivers -- are hard to come by even without inflation. It has to rely on contract labor to fill the gap. And the impact of rising prices is felt immediately across the board. That's much faster than when it has to raise pay for existing employees or to attract new ones.
CEO Sam Hazen recently explained the company's decision to lower full-year guidance by citing the increase in labor costs, an assumption that other costs will rise, and less COVID-19 revenue. Although salaries and benefits rose compared to last year, they weren't out of the ordinary over the previous five first quarters. Hazen did say that the pressure on wages has been slower to more moderate than management anticipated. It could mean the company is just being conservative. Others are experiencing costs that leave no doubt.
Data source: HCA. Chart by author.
The cost of food is rising
Labor isn't the only thing getting more expensive. The cost of food is also rising. Consumers feel it at the grocery store. For restaurants, it can squeeze profit margins if they can't raise menu prices as fast as the ingredients that go into making the meals.
That makes the largest pizza company in the world -- Domino's Pizza -- a good gauge. The list of ingredients is short so there isn't a lot of complexity in figuring out the impact. For Domino's, 25% of the cost is cheese.
The company measures and publicizes its food costs because it sells the ingredients to its franchised stores. Its market basket pricing is an unfiltered view into food inflation at the restaurant level. And it just reported a quarter that would have been off the old charts. It climbed almost 12% in the first quarter compared to last year. CEO Ritch Allison called it unprecedented. The data supports the claim.
Data source: Domino's Pizza. Chart by author. YoY = year-over-year.
Not all companies are seeing the same thing
If labor and food are more expensive, it begs the question: Who benefits? It turns out that as prices climb, so does the bill. And the companies that get a percentage of every transaction should be taking their same slice of a bigger pie. But so far it's not clear that is happening for Visa and Mastercard (MA +0.78%).
Mastercard just reported revenue that was 24% higher than the same period last year but didn't mention inflation in its press release. Visa did mention it. But CEO Al Kelly said the company saw no noticeable impact. He cited several ways it can help and hinder the top line before finally conceding that it has historically been positive for Visa.
Avoiding the spotlight
It's understandable if the payment processors don't want to call attention to the fact that rising prices can be good for business. Higher oil prices are good for Chevron and ExxonMobil and they pay the price by being the focus of many negative comments from the media and politicians when gas is expensive. Still, the fact remains that input costs are rising for companies. And that is translating to higher prices for consumers. Those higher bills give Visa and Mastercard a boost when others are feeling the pinch. Just don't expect them to brag about it.
