As we warned last week, profit warnings are coming thick and fast from American companies as they come to grips with Delta-fearmongered-demand weakness and COVID-scare-driven supply-chain chaos that is anything but transitory.
The latest warning comes from massive multi-national conglomerate 3M.
Speaking at a Morgan Stanley conference this morning, 3M CFO Monish Patowala warned that the outlook is much more like the worst-case scenarios than any overly-optimistic view that markets appear to be imbibing… (headlines via Bloomberg)
- *3M SEES AUTO ’21 PRODUCTION -6% ON CHIP SHORTAGE VS -3% EARLIER
- *3M EPS IMPACT DUE TO INFLATION, SUPPLY CHAIN DISRUPTIONS: CFO
- *3M CFO SAYS AUTO CHIP SHORTAGE DISRUPTIONS TO CONTINUE IN 2022
- *3M CFO SEES 2021 EPS IMPACT ON `HIGH END’ OF 65-80 CENT RANGE
- *3M CFO: COST OF RAW MATERIALS IS BIGGEST SUPPLY CHAIN CHALLENGE
All of us are experiencing the semiconductor shortages. I would say to automotive and electronics, but you starting to see it impacting a lot of Industries, the outbreak of the Delta variant continues to impact the world as well as hurricane idea as also put more stress now on already stress supply chains, causing a lot of inflation, as well as material availability across issues across the globe… you’re seeing a lot of OEM the shutting down manufacturing because the lack of semiconductor chips.
Auto which was expected to see down -3% for the second half of the year or bills is now going to be down 6%, for the second half electronics is getting impacted, so consumer electronics, TVs are all getting impacted by the chip shortage, but also TV is we are seeing that factories of being shot down because of the cost of the delta variant in many parts of the world, so that’s going to put more pressure, on basically what was already going to be a negative year-over-year company’s going to make it worse. When I move over to healthcare, you’re seeing uneven recovery in healthcare so in certain places, you’re saying procedures remaining as they were and certain cases, you are seeing procedure starting to come down. We see right now that that North American elected procedures would be approximately 90% of pre-pandemic levels. Going into the third quarter, we have thought we would be closer to the 92% to the 95%, but we are going to be at the lower end and even lower depending on where it goes.
Moving over to raw materials. Again, I think the inflation is unprecedented. We are seeing inflation in the same areas I talked about earlier jobs, raw material, labor and logistics, raw materials again you go down to polypropylene, talk about resins, that inflation remains.
I would say inflation, when you think about raw material and logistics, both are very high. For us, inflation again comes from multiple different. So luckily, we don’t have one commodity that has all the inflation, but right now we are seeing broad-based inflation. So, we’ve seen inflation in the resins work, we’ve seen it with poly propylene, ethylene, wood, pulp. You’re seeing inflation in all those areas. We are also seeing labor inflation. You’re seeing labor inflation, whether it’s outsource manufacturing goods, plus in some cases even in our own factories. We’re seeing some labor inflation.
And logistics, the port congestion is so hard. So there I would say that is sometimes even the lack of availability of carriers to take the product that’s hurting us. So I would say, cost is number one, availability is number two, but we have quite confident that we will work through this and we are blessed and to have customers who still rely us, not rely on us for helping us solve their problems, at the same time, making sure that we fulfill our brand promise that we have, which is delivering on time with good quality and helping customers solve their problems.
I think inflation is way outstripping anything that we thought.
Future will depend on when inflation starts tempering down and, my belief – and I may be wrong – is until we see demand and supply parity somewhere, we can continue to see inflation in raw material, and in logistics. And I think port congestion, as well as port shutdowns.
…in just talking to our OEMs, talking to multiple other people in the industry, we believe that this is going to go into 2022. I don’t think it’s a 2021 issue.
I think until you see the available chips go up and a steady supply of those chips, you’re going to have all the OEMs have to go through ups and downs to keep the factories running. So our belief is, this is a 2022 issue.
The question is – will Jay Powell give 3M a quick call and tell them to stop fretting about the anything-but-transitory inflation they are suffering from? Or should we believe 3M’s CFO – a person with real skin in the game – when it comes to the state of the real world?
As we warned last week, expect many more companies to “unexpectedly” guide much lower for Q3 and Q4, if not pull guidance completely, now that even the NY Fed suspended its GDP Nowcast as the wheels are again coming off the US economy, with all of Biden’s trillions in stimmies spent long ago, and just in time for the Fed’s taper.
Watch Alex Jones take Ivermectin ‘horse paste’ live on air.