Record corporate results show that not everyone is in the same boat when it comes to inflation

CRH, Kerry Group, Smurfit Kappa and Kingspan each updated investors on their trading for the first three months of the year, a period that saw some of the most extreme inflation in decades, particularly following Russia’s invasion of Ukraine.

The industry is not entirely immune. Higher energy bills hit even the savviest of hedgers, but the net impact seems extraordinarily limited.

On Friday, Smurfit Kappa Group’s results showed how well it is managing inflation, raising prices to offset rising input costs and even managing to improve margins.

Demand for paper and packaging means customers are scrambling to get their hands on Smurfit’s board products, giving Irish PLC real pricing power.

Smurfit Kappa increased sales for the period by 33 percent to more than €3 billion with an identical increase in earnings to €514 million.

CEO Tony Smurfit attributed the improved performance to the company’s “resilient operating model,” though he noted “a number of significant operational challenges.”

“Virtually all input costs have risen sharply and the already tight markets and supply chains have been exacerbated by the war in Ukraine,” he said.

However, the results suggest that, at least for now, its customers and not the company are being affected.

“Cost increases and supply shortages remain a feature of our business, which is managed through the commitment of our employees and through active price recovery,” the company said in a stock exchange release. In other words, the company can raise prices to offset its own higher bills.

Growth in the core corrugated business was 3.6 percent for the quarter, with Europe up 3 percent and the Americas up 6 percent.

“This is a remarkable achievement in the context of the ongoing cost environment and further underscores the quality of the business model and the sustainability of earnings,” said David O’Brien, analyst at Goodbody.

It was a similar story at CRH earlier this week. Ireland’s most valuable company and the world’s second largest supplier of building materials reported first-quarter sales, profits and margins all above the same period last year.

CRH isn’t immune to higher input bills, but CEO Albert Maniford told reporters Thursday the company was able to push inflation through to customers.

“We’ve evolved from sort of a price-taker to a price-maker, offering a lot more value-added services on top of what we do,” he said. “That was a fundamental part of increasing margin going forward. I think it will continue this year. The momentum we saw in the second half will continue in the first half for revenue, profit and margin.”

CRH increased margins by half a percentage point to 17.3 percent in 2021, the highest in the company’s history.

Meanwhile, Kerry Group reported organic growth of 11.4 percent for the first three months of the year.

The company’s profit margin before interest, taxes, depreciation and amortization increased 10 basis points, Kerry said. Not a huge increase, but keeping it in positive territory despite the shocks hitting world trade.

Chief Executive Officer Edmond Scanlon said he was pleased with the results “despite difficult conditions in a number of markets”.

Cavan-based Kingspan announced Friday that it posted sales of €1.89 billion for the same three-month period, up 47 percent from the same period last year. More tellingly, Kingspan numbers are up 31 percent after excluding contributions from new acquisitions. Analysts said most of the increase on a like-for-like basis was due to higher demand for Kingspan’s coveted insulation products.

The company reports global pent-up demand for insulated panels and helps explain how it maintains pricing power, although Goodbody analyst David O’Brien said commodity inflation would pose a “challenge” from here, with margins likely something would erode.

The company also warned that inflation was likely to squeeze margins this year and suggested a limit on how long price increases can be passed on to customers.

Davy Stockbrokers’ Flor O’Donoghue says he’s not confident big companies can weather inflation over the longer term.

“I think one reason you’re not seeing a lot of improvement (from corporate earnings or stock price forecasts) is caution about what the world could be like later this year,” he said.

The risk of “destroying demand” when high prices force customers to abandon or source cheaper substitutes is a real risk, he said.

“If companies continue to raise prices to keep up with rising costs, at what point do they meet resistance?”