Inflation continues without giving truce to companies on the stock market

Inflation reached 8.74% in Mexico in September, when in January it stood at 7.07%, which is negative for companies listed on the Stock Exchange because they will continue to face pressure on their costs, directly impacting their sales, profits and performance in the market. stock market, explained specialists.

They pointed out that the increase in inflation is not positive for companies because their inputs become more expensive and because consumers lose purchasing power, affecting consumption.

“It is in the cost of supplies and services that companies suffer the most from inflation. When your investments are focused on certain commodities they are also hit and the first thing that is hurt is your margin. We will be reviewing this in the quarterly reports”, said Jorge Gordillo, Director of Analysis at CIBanco.

The companies that are part of the S&P/BV IPC, the main index of the Mexican Stock Exchange (BMV), reported pressure on their margins in the second quarter of the year, because their costs and expenses increased, on average, 16.40% compared to the same period of 2021.

“As there are no clear signs that inflation will drop, we will continue to see pressure on margins; however, since companies begin to assimilate this inflationary dynamic, they have implemented strategies to increase prices, price hedging, expense and cost control, to face scenarios like these,” said Alain Jaimes, stock market analyst at Signum Research.

Issuers of the S&P/BMV IPC have raised the prices of their products this year to overcome the increase in the cost of their inputs. Among them Coca-Cola Femsa (KOF), Arca Continental (AC) and José Cuervo, which sell beverages.

Also the cement companies, Cemex and GCC; the food companies, Grupo Bimbo and Gruma; as well as the manufacturer of personal hygiene products, Kimberly-Clark de México (KCM) and the restaurant operator, Alsea.

“Companies usually transfer their costs to the final prices of their products as a measure to protect their profit margins, however, one of the challenges is to measure to what extent they can continue applying increases,” said Jorge Gordillo.

“Companies have applied strategies so that their results are not so affected, such as increasing prices, but this is where they stand out because not all products have the same elasticity and the ability to face market competition,” said Alain Jaimes.

Other strategies are cost control, they are also agreeing with their suppliers on some hedges in the prices of their inputs, such as corn, wheat, coffee, dairy products, hydrocarbons.

“Companies will continue to suffer from inflation in the next two quarters, but with less intensity than in the first half of the year, since it is expected that with the measures applied by the monetary authority, prices will begin to moderate,” Jaimes explained.

Another adverse effect has to do with the increase in the interest rate, which stands at 9.25 percent.

“Inflation is one of the great concerns of businessmen. 84% of Mexican companies have canceled or postponed investment plans in capital goods and 56% have done so in plans to hire new personnel”, is indicated in the study “Monitoring of Business Perceptions”, prepared by Vestiga Consultores between Major shareholders and CEOs of 917 companies.

Stocks pressured

The performance of companies on the stock market is also overshadowed by high inflation, in a certain sense. In 2022, the hardest hit are those in sectors such as tourism (airlines), construction (cement companies); the winners have been those of basic consumption, since they are capable of transferring the effects on the final price of their products without sacrificing much the volume of their sales.

The airline Volaris and Cemex register deep falls in the price of their titles of 58.90% in the first case and 51.25% for the second. While GCC, José Cuervo and Gruma have lost 22.12%, 28.19% and 23.86%, in that order. The winners have been Bimbo (+14.30%), Arca Continental (+7.92%) and KOF (+7.05%).

Between April and June, Volaris reported that its operating expenses were 710 million dollars, this is 61% more than in the same period of 2021. One of its main costs is jet fuel, whose price rose 107% in the period, to 4.4 dollars per gallon.

Cemex and GCC announced impacts on the price of energy (one of the main inputs to produce cement) and transportation. Cemex said that the cost of sales (as a percentage of net sales) increased by 7.8 percentage points, to 68% in the second quarter of the year, from 60.2% in the same period of 2021.

Gruma faced increases in the prices of corn, transportation, labor and fuel, which reduced their impact through price hedging, the transfer to its final products, reduction of marketing expenses, among other measures.

Bimbo’s second quarter gross profit increased 12.8% and its margin contracted 240 basis points to 51.5%, attributable to higher raw material costs in all regions.

judith.santiago@eleconomista.mx