Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.

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COVID Country

COVID-positive nurses say they’re being pressured to work while sick, and they’re petrified of infecting patients by Allan Akhtar and Aria Bendix (Insider)

Nurses that still have symptoms of confirmed positive COVID infections are being asked to return to work in hospitals in Kentucky and around the country. [Link]

White House, USPS finalizing plans to begin shipping coronavirus test kits to U.S. households by Jacob Bogage and Dan Diamond (WaPo)

The White House and USPS are finalizing plans to ship half a billion at-home COVID tests across the country with the first packages rolling out the door by mid-January if everything goes according to plan. [Link; soft paywall]

Belief in Having Had COVID-19 Linked With Long COVID Symptoms by Anita Slomski (JAMA)

While there is no doubt that some COVID sufferers have symptoms which last much longer than the acute infection, there’s a lot of uncertainty over how pervasive and severe long COVID is. This study showed that while belief that a person had actually been infected with COVID wasn’t correlated with the presence of antibodies for the disease, that same belief was positively correlated with “long COVID” presentations, suggesting a material psycho-somatic effect. [Link]

Indiana life insurance CEO says deaths are up 40% among people ages 18-64 by Margaret Menge (The Center Square)

Indiana insurance company OneAmerica reported that death rates for 18-64 year-olds had risen 40% versus pre-pandemic, a historic increase that illustrates just how heavy the burden of COVID has been on American society. [Link]

COVID & Children

Characteristics and Clinical Outcomes of Children and Adolescents Aged <18 Years Hospitalized with COVID-19 — Six Hospitals, United States, July–August 2021 by Alentine Wanga et al (CDC)

A survey of COVID cases in Southern hospitals identifies potential risk factors for children: over 80% had an identified underlying medical condition, two-thirds were obese, and virtually none were vaccinated. [Link]

Pandemic babies displaying developmental delays — even if their mothers didn’t have COVID (Study Finds)

Pandemic babies are showing slower cognitive and social development than pre-pandemic children, regardless of whether or not expecting mothers had COVID. [Link]

No Way to Grow Up by David Leonhardt (NYT)

Children are falling behind in school, suffering more mental health crises including suicide attempts, exposed to more gun violence, and are exhibiting more behavioral issues as the weight of the pandemic falls on the youngest members of society. [Link; soft paywall]

Embrace The Cold

Could Being Cold Actually Be Good for You? by Max G. Levy (Wired)

A range of studies of showed that being cold regularly is a good way to stimulate your body’s metabolism and force adaptations that can help reduce the effects of diabetes. [Link]

BTCS First-ever Nasdaq-listed Company to Offer a Dividend Payable in Bitcoin (Yahoo! Finance/Globe Newsire)

A NASDAQ-listed company which has delivered 69% losses per year since the end of 2010 announced it would start paying dividends denominated in bitcoin. Shares were up 40% in response but if history is any indication will return to their habitual declines soon. [Link]

Energy

Harold Hamm: ‘Republican, Democrat . . . I’m an oilocrat’ by Derek Brower (FT)

The Continental Resources founder wants coal plants closed so his natural gas empire can profit (and with a side of carbon reduction. Battery-electric vehicles, wind, and solar? Right out. [Link; paywall]

Is Nuclear Power Part of the Climate Solution? by Gernot Wagner (WSJ)

As most of the world’s nuclear reactors age and approach retirement (along with the 10% of global electricity they produce), the technology is at a turning point amidst demands for decarbonized power. [Link; paywall]

Labor Markets

‘Hottest it’s ever been’: why US labour market is stronger than it seems by Colby Smith, Andrew Edgecliffe-Johnson, and Christine Zhang (FT)

Official data points are finally catching up to anecdotes, as illustrated by this excellent round-up off labor market data. [Link]

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Have a great weekend!

Predicting economic data has been difficult in the post-pandemic era, but economists have had a particularly difficult time trying to forecast the monthly number of jobs created in the US economy.  This Friday’s Non-Farm Payrolls (NFP) report was a perfect example.  While economists were expecting growth in payrolls of around half a million, the actual reading came in much weaker at 199K.  December’s whiff wasn’t just a one-off either.  Last month, economists were even further off the mark when actual payrolls in November came in 340K below forecasts.  Since the pandemic really started to impact the economy in March 2020, the monthly NFP has been more than 100K off the mark in 17 out of 22 months, or 77% of the time.  Prior to the pandemic, meanwhile, NFP forecasts were only off the mark by more than 100K less than 20% of the time.

Another way to highlight just how difficult it has been for economists to forecast the monthly number of jobs created in the US economy, in the chart below we compare the average spread between actual and estimated monthly payrolls from 1998 through 2019 versus the spread for each month in 2021.  For this analysis, we left out 2020 as the magnitude of the disruption to the economy was. admittedly, impossible to predict.  Even in 2021, though, the only month where economists were closer than average to predicting the actual number of jobs created was for the January 2021 report where the consensus forecast was less than 60K off the initially reported level of payrolls.

As the start of the pandemic moves further back in the rearview mirror, it should become easier for economists to gauge the performance of the economy, but as 2021 has shown us, there’s still plenty of room for improvement.      Click here to view Bespoke’s premium membership options.

With earnings season on the horizon, we wanted to provide you with insights into some of the issues (both positive and negative) experienced by companies that have already reported. Although every company handles challenges differently, these commentaries can prepare investors for what to expect throughout the upcoming earnings season. We selected some of the largest companies that reported this week and went through their conference calls and pulled some quotes concerning key macro issues each one has experienced. For a deeper dive into earnings calls that we find vital, click here to see our Q4 Conference Call Recaps.  Throughout earnings season we will continue to update this analysis with key insights into both macroeconomic and company-specific trends.

Constellation Brands (STZ)

• Consumer-facing prices appear to be rising as CEO Bill Newlands stated, “We expect price increases within our beer portfolio to last, slightly above our typical 1% to 2% range.”
• Newlands continued, “we continue to expect our gross margin to be negatively impacted for the fiscal year as benefits from price and cost savings agenda are expected to be more than offset by cost headwinds… as the inflationary environment resulting from economic supply chain and other by-products of the pandemic continues to be dynamic and vertical.”
• Diving even deeper into the inflationary pressures, Newlands added, “We expect significant cost increases for the business including supply chain disruption inflationary cost pressures on product freight and warehousing costs… and we are diligently working to address the brown glass shortage that is acting as a headwind.”

Bed Bath & Beyond (BBBY)

• Supply chain concerns appear to be persistent as CEO Mark Tritton commented, “While we effectively offset higher freight costs that have been at the core of global supply chain pressures, increasing inventory disruptions impacted our ability to meet demand during the holiday season… we experienced a slower start to sales in September and October.”
• Tritton proceeded, “The customer experience was compromised as strong demand wasn’t met with strong product availability.”
• On a positive note for retailers, in-person shopping appears to be picking up. “We’re also pleased to see customers return to brick-and-mortar shopping this year as our U.S. stores delivered mid-single-digit sales comps over this five-day holiday [Thanksgiving weekend] period,” according to Tritton.

Conagra Brands (CAG)

• Although CAG experienced the same inflationary headwinds, it was more optimistic about the future. According to CEO Sean Connolly, “We expect margins to improve in the second half of the fiscal year as a result of the levers we pulled and continue to pull to manage the impact of inflation… Given the magnitude of the cost increases, our actions also include additional inflation-driven pricing.”
• Connolly explained, “We’re increasing our organic net sales guidance based on stronger than expected consumer demand and lower than anticipated elasticities,” which implies that price hikes are having little impact on demand, meaning companies are likely to continue increasing consumer-facing prices.

Helen of Troy (HELE)

• Although sales grew year over year, “online sales declined approximately 7% in the quarter, reflecting similar channel trends to those we saw in the second quarter.” As per CEO Julien Mininberg, consumers appear to be decreasing the rate at which they engage in commerce online, which may be a headwind for companies like SHOP, EBAY, and AMZN.
• Methods used to combat rising cost pressures “include a strategic increase in inventory, leveraging of pre-negotiated sea freight container rates, several efficiency and cost control initiatives, and price increases,” according to Mininberg.

Lamb Weston (LW)

• CEO Tom Werner stated, “We generated strong sales and solid demand across our food-away from home channels, drove volume growth, and the initial benefits of our recent pricing actions began to offset inflationary pressures.”
• The labor market seems to be improving for LW, and Werner commented, “Our efforts to stabilize our manufacturing operations are on track, including increasing staffing at our processing plants to improve production run rates and throughput.”
• Giving insight to consumer eating habits, Werner added, “In the US, overall fry demand and restaurant traffic in the quarter remained solid, especially at quick-service restaurants where demand has continued to be strong and above pre-pandemic levels. Traffic at full-service restaurants during the quarter was also solid but remained below pre-pandemic levels… Demand at non-commercial outlets also improved during the quarter but continued to be below pre-pandemic levels.”

Lindsay (LNN)

• CEO Randy Wood commented, “Turning to the current operating environment. Material cost increases and supply chain constraints continue to impact our business and we expect that to persist through the spring and summer seasons… we continue to pass through cost increases and see a rational pricing environment in the market.” The inflationary pressures do not seem to be going anywhere, as companies across the board have reported continued cost increases on the supply side.
• As labor issues persist, companies are increasingly finding ways to replace humans with automation. According to Wood, “we continue to enhance both the FieldNET and RoadConnect platforms. We see growth in adoption of these technologies that reduce labor and improved efficiency for our customers”
• International farmings markets appear to be strong. Wood explained, “In international irrigation, we see some of the same positive market drivers linked to strong commodity prices and farm income in the developed markets including Brazil, where we continue to set shipping records, Australia, New Zealand and Western Europe.”

Schnitzer Steel (SCHN)

• Although steel demand remained strong, supply chain issues caused slippage. CEO Tamara Lundgren stated, “Our record results this quarter would have been even stronger had several contracted shipments for November not slipped into December, due to COVID-19 related supply chain disruptions… the supply chain impact on shipments is currently difficult to predict.”
• However, the operating environment was still favorable for SCHN. Lundgren explained, “Demand for finished steel continued to increase with prices reaching their highest levels on record. Supply flows remain robust in Q1, despite trucking and COVID related labor shortages in certain markets.”

Walgreens Boots Alliance (WBA)

• WBA offers unique insight into the realm of COVID, as they conduct a solid share of testing and vaccinations. CEO Rosalind Brewer expressed, “Our testing and vaccinations are tailwinds for our business. I’m very proud of the continued success of our core businesses, the strong growth in US retail, and robust recovery in our international market.”
• Brewer added, “In the US, we administered 15.6 million COVID-19 vaccinations within the quarter.”
• CFO James Kehoe disclosed that “Inflation is also on the rise and finally we expect to pass through the majority of these higher costs, but there may be some short-term impacts.”

Acuity Brands (AYI)

• Building management demand appears to be strong, which provides investors with insight into a variety of industries. CEO Neil Ash delineated, “Demand across our end markets remain strong. At the same time, the availability and cost of key inputs remain challenging. In short, it’s the best of times and the most challenging of times.”
• Ash proceeded, “In this dynamic pricing environment, we have been prudent and successful passing on price increases.”
• Consistent with the rest of the companies on this list, AYI faced production restraints. Ash disclosed, “There is a gap in time between when we receive orders and when we fulfill them in normal times, and that is even greater now… While we don’t disclose backlog, what I will say is that it is meaningfully higher than during normal periods.”

Summary

Inflation pressures were at the center of almost every conference call thus far and with supply chain disruptions and labor shortages leading the way as causal factors, are not likely to dissipate any time soon, Due to strong demand, companies appear able to pass these costs directly on to consumers, so do not expect reduced prices at the grocery/department store any time soon. On the bright side for retailers and small businesses, consumers have increased the rate at which they shop in person.  Click here to view Bespoke’s premium membership options.