Companies Made Heaps of Money in 2021. And Workers?
(Bloomberg Opinion) -- A year ago analysts thought steelmaker ArcelorMittal SA would be lucky to make $2 billion of net profit in 2021. Their estimates turned out to be more than a little pessimistic: the Luxembourg-based corporation should report about $14.5 billion of earnings, higher than the past 13 years combined.
Compared to the $240 billion of profit that U.S. tech giants Apple Inc., Google-parent Alphabet Inc. and Microsoft Corp. will share this year, the haul might seem trivial, but make no mistake: Europe’s largest companies are mostly doing extraordinarily well and their good fortune looks set to continue.
After surging 67% in 2021 to levels that exceed the pre-pandemic high, profits per share for companies in the Stoxx 600 should increase about 6% next year, according to Bloomberg Intelligence. On average, operating profit margins are expected to rise to about 15% in 2022, the highest in more than a decade.
These profits strengthen balance sheets and help fund vital decarbonization investments. Shareholders can also look forward to chunky dividends and share repurchases. But what of employees? With their purchasing power crimped by soaring consumer prices, they must be wondering when, if ever, they’ll pocket their fair share. They could be waiting a while.
Considering all the talk about supply-chain bottlenecks and raw material cost inflation, one might expect corporate profits to be under real pressure. In reality, industrial companies seem to be coping just fine. They tightened spending during the early part of the pandemic and now a combination of strong demand and low inventory levels have helped them push through price increases, further padding profits.
In autos, semiconductor availability crimped production and suppliers have struggled, however the manufacturers have focused on producing their most profitable vehicles, such as limousines and SUVs. Mercedes-Benz’s car unit predicts an operating return on sales of between 10% and 12% in 2021, very high by recent standards, and no wonder. Average selling prices rose to nearly 55,000 euros ($62,000) per vehicle in the latest quarter, according to Berenberg. Average prices will remain 20% above pre-pandemic levels next year, the bank’s analysts think.
Automakers have enjoyed a second dose of good luck. When leased vehicles are returned, they’re typically worth far more than budgeted due to widespread shortages of second-hand vehicles, making their financial services more profitable.
Metals and energy prices have surged this year, making it a decent time to be an oil producer or miner. These companies often face shareholder pressure not to splurge too much on developing new resources. Hence they’re throwing off lots of cash that can be returned to shareholders. Swiss miner and commodities trader Glencore Plc is on track to generate almost $10 billion of free cash flow in 2021; and 2022 looks like being even better.
Thanks in part to the impact of Europe’s 750 billion-euros recovery fund, euro area gross domestic product growth should moderate only slightly next year to just over 4%. Interest rates aren’t likely to rise much soon. Hence, corporate borrowing costs will remain low. Exporters should also realize a benefit from the weaker euro, which makes their products cheaper for overseas buyers.
Though cost inflation doesn’t appear a big problem for companies, it certainly is for workers. You’d expect employees to bargain for more pay, particularly when they see how profitable their employers have become.
Admittedly, Germany’s new coalition government plans to hike the minimum wage by 25%, but trade union wage settlements have so far been pretty meager. Furlough programs averted European job losses during the pandemic but this means there aren’t as many people starting new jobs, which is when workers are in better position to bargain for more pay, notes Bloomberg Economics. It will be a decent year for employee profit-share and similar staff pay awards, but any broader rebalancing of the returns to capital and labor is likely to be fairly modest.
In recognition of their hard work keeping supply chains moving this year, employees of AP Moller-Maersk A/S can look forward to a $1,000 bonus. Those payments will cost the world’s largest container shipping line almost $100 million. But Maersk can certainly afford it: it’s on track to report $17 billion of net income in 2021, the highest profit in Danish corporate history. Thanks to still-elevated freight rates, next year should be almost as good.
More From Other Writers at Bloomberg:
Fattest Profits Since 1950 Debunk Wage-Inflation Story of CEOs: Matthew Boesler, Joe Deaux and Katia Dmitrieva
Covid Can’t Stop Corporate Profits From Climbing to Record Highs: Justin Fox
European Profit Outlook Robust Even With Inflation, Supply Issue: Joe Easton, Michael Msika
Unsurprisingly ArcelorMittal’s profits are expected to normalize next year, according to the Bloomberg consensus. But they're still likely to be very good as automotive contracts will reset at higher levels.
There's a separate bonus plan for most office-based workers that's linked to company performance
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.
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