Companies Are Telling Us the Real Reason They're Still Raising Prices

Tracy Alloway (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:14)

And I'm Joe Weisenthal.

Tracy Alloway (0:16)

Joe, it always feels to me like it's earning season. Isn't that right? I feel like every month it's earning season. It just goes on forever.

Joe Weisenthal (0:24)

I know, it's always earning season. It's always about to be Mardi Gras in New Orleans. There are certain things that are like, oh, that's this time of year again. Certain things, it's always like Carnaval in Brazil. It's like, oh, that's happening again. And yes, earning season is always right around the corner. These things that just seem, I think that they feel like they're supposed to be rarer than they seem to be.

Tracy Alloway (0:44)

Yeah, they happen four times a year, but it seems like it's constant. Maybe this is one reason why we historically haven't done a lot of earnings episodes, but I think now is a good moment to actually stop and reflect on what we've been seeing from companies, because of course, all of this feeds into the big macro inflation discussion.

Joe Weisenthal (1:04)

Well, two things about this is one is economists should listen to what companies say more often, I feel like. There are so many economists and I love them, but there are so many economists out there, who some talk about the money supply or the Fed or some like the dot plots and all this stuff and all that's great, and I love it and everything. But often companies are just telling you what's going on, and a lot of my favorite economics analysis comes from someone who's just like, let's listen to the conference call and hear what management has to say.

Tracy Alloway (1:36)

There is a tendency for economists to talk about inflation expectations in the abstract sense, but you could just read an earnings transcript and look at a big food company, for instance, and see that they're saying, oh yeah, we're going to push through some more price increases, and that would be a pretty big clue.

Joe Weisenthal (1:54)

Why? The nice thing about conference calls too is the analysts represent the interests of investors, and so they're asking the questions that investors want to know about. One of the things that we've explored for years on this show is the degree to which companies care about investors, and we talked about it a lot with oil specifically. Oil companies for years, maximizing drilling output versus price, then switching post pandemic and so forth. These conference calls give a clue on both sides, and that helped drive corporate behavior.

Tracy Alloway (2:27)

Totally. So on this episode, we are going to be trying to, I guess, draw that line between the micro and the macro, talk about earnings and what it means for the wider economy. And I am very happy to say that we do have the perfect guest. We are going to be speaking with Samuel Rines. He is a managing director over at Corbu. You might recognize his name if you've been subscribed to the Odd Lots newsletter. I've written a little bit about his work recently, but he's been writing some very good analysis of earnings and specifically the pricing strategies that companies are undertaking in the current environment. So Sam, thank you so much for coming on Odd Lots.

Samuel Rines (3:06)

Thank you for having me.

Tracy Alloway (3:07)

So, you know, I first started reading your work, I guess it was last year, and you've developed this idea that you call POV, price over volume. Can you walk us through exactly what that is?

Samuel Rines (3:21)

Sure. So basically going back to, we call it early 2022, it was kind of this realization that something was going on underneath the surface with corporations that was pretty interesting. And that was they were making the decision that they didn't really care about losing a little bit of volume and they really cared about kind of finding how much price they could push and how much the consumer would react to it. And the first really interesting example of that that we pulled out was Pepsi. And Pepsi, we called it the new PPP. It was what was going to bail investors out after the Russia invasion. And it was the Pepsi pricing power. Pepsi found that even though they had about 4% of their revenue exposure to Russia, they could push price everywhere else and make up for that volume without any problem. So it's this really interesting kind of first tidbit, right? Corbu, we tend to really focus on what's going on with the geopolitics and try to drive down into that and figure out how to kind of play around it. And it was really a revelation, at least to me, when Pepsi was pushing double digit pricing.