Pressure Points: Early Takeaways From Q1 Earnings Season
Key Highlights
- Energy costs, especially fuel prices, are significantly impacting transportation and manufacturing, with some sectors experiencing demand resilience despite inflation concerns.
- Supply chain disruptions, particularly in aluminum and helium, are squeezing margins but have not yet led to demand destruction in key industrial markets.
- Labor shortages in skilled trades and trucking are constraining capacity expansion and driving up wages, further fueling inflationary pressures.
- The durability of demand in 2026 remains uncertain, with geopolitical tensions and supply chain issues potentially leading to sustained inflation and economic volatility.
As headlines go, PPG’s on April 15 was an eye-opener.
In announcing a “global price increase of up to 20%” that executives said was already underway, the Pittsburgh-based maker of paints, coatings and a range of specialty products didn’t mince words. The upheaval in the energy, petrochemical and transportation markets from the Iran war means many of the company’s input costs have risen dramatically. Waiting to see how things turn out wasn’t an option.
“Our top priority remains supporting our customers with consistent quality, dependable supply and technical expertise, even as market conditions remain highly dynamic,” Chairman and CEO Tim Knavish said in a statement. “This pricing action allows us to ensure availability of supply.”
Why cost pressures are dominating Q1 earnings calls
Knavish and his team also made it clear that they would push price hikes beyond 20% where needed (and contractually allowed). And they’re far from alone in talking about prices like this, making cost pressures the runaway top theme from first-quarter earnings season to date.
The pressures are manifold. Everyone is paying more for transportation and the consensus has gathered around the idea that there won’t be a quick snapback to lower oil prices. By way of illustration, Bank of America Global Research analysts said last week that fuel prices were a prime driver in pushing operating cost increases for food companies up nearly 8% from a year ago.
How higher oil prices could trigger a second wave of inflation
As oil prices make their way into derivative products such as plastics, lots of leadership teams look likely to incur a second wave of cost pressure in the coming weeks. And it’s one that they may need to counter by going to customers with their own price hikes multiple times this spring and summer.
In some industries, that can be a fraught proposition: On April 16, electric utility Exelon Corp. said its PECO Energy subsidiary had withdrawn the electric and gas rate case it had filed with Pennsylvania regulators late last month. The move came after “taking into consideration conversations with Governor Josh Shapiro” — and was followed just five days later by word that PECO President and CEO David Vahos was out and moving into an advisory role to Exelon boss Calvin Butler.
Not all customer/stakeholder pushback can or will be as consequential as Shapiro’s. But the episode provides a stark illustration of the growing fatigue around price hikes that executive teams in several sectors have discussed in recent months.
Are companies seeing demand destruction from higher prices?
With energy costs being reflected most visibly in prices at the pump, it’s no surprise that some consumer- and travel-focused companies are seeing some of the biggest impacts from the Iran war. But most customers aren’t yet bailing: While some budget airlines were said to be in talks with the White House this week about landing billions of dollars of help to offset jet fuel costs, the leaders of several other carriers have noted that demand remains strong.
“Over the last month, cash sales — which are the clearest indicator of demand — are up double digits, with strength across the booking curve, geographies and products,” Delta Air Lines CEO Ed Bastian said on April 8.
Bastian and his team, as well as other airline executives, are pushing through price hikes — although Delta expects to recover only between 40% and 50% of the higher fuel costs this quarter — and holding flat or trimming capacity. And United Airlines CFO Mike Leskinen told investors he thinks it’s “prudent” to expect that demand has to give a bit at some point — but, he added, “we are not seeing it.”
Industrial demand remains resilient despite supply chain disruption
On the industrial side of the economy, many executive teams’ commentaries have so far similarly focused more on demand disruption than demand destruction. Beyond oil and natural gas, the Iran war has restricted exports of aluminum, helium and other products used widely by a range of manufacturers. That’s dinging margins, but it isn’t yet throwing off many buying decisions — including orders for cutting tools. Similarly:
- 3M’s Brown told investors that “good order growth” in January and February “accelerated quite a bit in the month of March” and continued into April. The company’s backlog rose more than 10% in the first quarter.
- Martina McIsaac, president and CEO of MSC Industrial Supply, said the overall picture across the distributor’s markets is mixed but pointed out that core customers in the fabricated metals and primary metals sectors are strengthening and that some areas that have somewhat struggled of late, such as agriculture and automotive, are showing “some beginning signs of life.”
- Honeywell International leaders told analysts the war hurt Q1 revenues by about 0.5% and will take about 1% off the company’s Q2 top line. But Chairman and CEO Vimal Kapur and CFO Mike Stepniak also said backlogs and bookings are more than holding up: “The actual results of Q1 and then forecast for Q2, they get offset by strong performance in the second half,” Kapur said. “Net-net, the overall year being flattish, we remain very confident on that. The backlog supports it. The historic linearity supports it.”
The big question: How durable is demand in 2026?
So the near term looks — here we go using that buzzword — resilient. The big, still-unanswerable question that could end up defining the economy for all of 2026 is how durable demand can remain in the face of one more round of inflation and supply-chain upheaval. There’s no quick fix to the disruptions in the Middle East, with most observers and economists saying it could take months to clear the logistical logjam. And it will very likely come with a price.
“It hasn’t hit the markets yet, but it’s certainly going to,” Eurasia Group President Ian Bremmer said midday April 27 on some of the economic costs that will need to be paid.
Those impacts will also help answer the questions of whether the budding upswing in manufacturing has been more about pre-buying or inventory replenishment than truly healthy demand.
Why skilled labor shortages remain an executive risk
Our last takeaway is about the shortage of several categories of skilled workers. Call it the uber-concern among business leaders — one that comfortably predates this decade’s inflation and supply chain worries — and even though it didn’t show up on a lot of earnings calls, it caught our ears several times.
We are experiencing increased challenges in driver hiring that we haven’t seen in years.
- Brad Hicks, J.B. Hunt
John Ketchum, chairman, president and CEO of NextEra Energy, pointed to one bottleneck on his team’s conference call. Many people, including the NextEra team, are focused on building out U.S. energy generation capacity, but labor is “the biggest constraint” on that.
“If you look at really what I would call the four EPC contractors that we do business with today, [that’s] a lot fewer than what we’ve ever had,” Ketchum said. “When you’re building a gas plant, pipe fitters, welders, so on and so forth. … The same EPC firms are building LNG terminals. They’re building data centers. They’re in other parts of the market.”
In trucking, two of the sector’s biggest names pointed out that the Trump administration’s push to tighten several regulations around licensing is not just removing freight capacity, but also tightening the market for drivers.
Said Brad Hicks, an executive vice president at J.B. Hunt: “We are experiencing increased challenges in driver hiring that we haven’t seen in years. We are well-positioned to handle these challenges, but it is a notably different environment.”
Knight-Swift Transportation CEO Adam Miller delivered a similar message to investors: “As the market improves, recruiting and retaining quality drivers have and will become more challenging. We believe we have an advantage with our terminal network and academies to source and develop drivers. However, we expect this to be a challenge for the industry in the back half of the year.”
How talent scarcity feeds back into pricing pressure
Which ties this topic directly back to broader cost pressures: Lower supply means higher prices. In an economy that often sees construction pros move to manufacturing lines and warehouse workers slide over to retail or hospitality jobs, talent scarcity is not a problem that can be safely characterized as contained to other companies’ C-suites.
About the Author
Geert De Lombaerde
Contributor
A native of Belgium, Geert De Lombaerde joined EndeavorB2B in September 2021 to cover public companies, markets, and economic trends primarily for IndustryWeek, FleetOwner, Oil & Gas Journal, T&D World, and Healthcare Innovation. His work focuses on strategy, leadership, capital spending, and mergers and acquisitions, and he also works with Endeavor Business Intelligence on surveys and data projects.
Geert has been in business journalism since the mid-1990s. With a degree in journalism from the University of Missouri, he began his reporting career at the Business Courier in Cincinnati, initially covering retail and the courts before shifting to banking, insurance, and investing. He later was managing editor and editor of the Nashville Business Journal before being named editor of the Nashville Post in 2008. He led a team that helped grow the Post's online traffic by an average of more than 15% annually before joining Endeavor.
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