(Bloomberg) -- Labor issues, from shortages to strikes, are intensifying and hurting company profits. The increasing likelihood that more wage gains lie ahead implies higher costs and thinner margins, while also undermining the prospect of transitory inflation.
The latest labor news comes from restaurant firm Brinker International Inc. -- the Dallas based parent of bar and grill chain Chili’s. The stock plunged as much as 12% in early Wednesday trading, after reporting worse-than-expected results as Covid exacerbated industry-wide labor and commodity challenges. Peer Chipotle Mexican Grill Inc., which is due to report on Thursday, also slipped in Wednesday trading, as did other dining stocks.
The “COVID surge starting in August exacerbated the industry-wide labor and commodity challenges and impacted our margins and bottom line more than we anticipated,” Brinkers CEO Wyman Roberts said in the statement. “We are responding to these COVID headwinds with increased focus on hiring and retention efforts, and working with our partners to gain further stabilization of the supply chain environment.”
Brinker joins a variety of firms reporting earnings with warnings about labor problems, from JB Hunt Transport Services Inc., the country’s biggest long-haul trucking company, to JPMorgan Chase & Co., its biggest bank. Among 23 S&P 500 companies that reported from Oct. 4 to Oct. 15, labor was a top concern among supply-chain worries, with double the number of firms discussing labor versus those mentioning logistics and port congestion, according to a check cited by RBC strategist Lori Calvasina in a recent note.
“Dialogue with our key customers reveals both a challenged labor market and a pent-up need to increase the in-stock levels across the system,” JB Hunt said during its earnings call, adding that it’s “not insulated from the labor dynamics mentioned above for our customers.” The firm has “reached all-time highs in the need for company drivers in all segments as well as openings we have on our office and field teams.” On JPMorgan’s call, Chief Financial Officer Jeremy Barnum said “labor inflation is definitely a watch item for us.”
Starting wages are also jumping across the board, while a series of strikes is unfolding after years of little labor unrest. Tractor maker Deere & Co. is experiencing its first major labor action since 1986, while striking cereal-plant workers hampered shares of food giant Kellogg Co. The shift toward growing employee power could rattle a broadening pool of investors.
This was a post on Bloomberg’s Markets Live blog. The observations are those of the blogger and not intended as investment advice. For more markets analysis, go to MLIV.
(Updates share trading in the second paragraph, from Brinker in the third paragraph, and from JB Hunt and JPMorgan in the fourth paragraph.)
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