Corporate America’s 2021 profits were higher than ever

Selina Johansson

Corporate America’s profit margins started strong and stayed high all throughout 2021.

That’s according to financial data company FactSet. According to the firm, the second quarter of 2021 saw a 13.1% profit margin among the companies of the S&P 500. The 4th quarter showed a slight dip but a still-elevated level of 12.4%. The numbers stretch 54 quarters — to the middle of 2008 — and reveal that the 4 best quarters for corporate profits in recent history all happened last year.

This data could provide ammunition for progressive Democrats and other corporate critics who have been charging for months that businesses largely responded to the pandemic and recent surge in inflation with “price gouging.”

Corporations are utilizing “their ability to ‘drive price’ and not leave any pricing on the table,” says Lindsay Owens, the executive director of the left-leaning group Groundwork Collaborative.

Owens and her colleagues embarked on a project to monitor corporate earnings calls since last summer. Early on, she says, CEOs “were a little surprised that consumers were forking over money at these higher price points.” But now she says the view of business leaders is we are “capitalizing on this phenomenon, we’re exploiting it and we’re pressing it to the hilt and we’re going to take it until we touch the stove.”

Slightly different historical measures of corporate profits finds profit-levels in the last decade have been well above historical averages, meaning 2021 was likely the best year for corporate profits since World War II or longer.

‘A very lucrative space’

The issue of growing corporate profit margins has attracted scrutiny from Democratic figures like Senators Elizabeth Warren and Bernie Sanders. Earlier this month, Congress held a hearing focused on “pandemic profiteers” and, in a recent Yahoo Finance interview, Rep. Alexandria Ocasio-Cortez attributed recent price hikes not to inflation but to just “straight price gouging by corporations.”

U.S. President Joe Biden holds a video conference with farmers, ranchers and meat processors to discuss meat and poultry supply chain issues, from an auditorium on the White House campus in Washington, U.S. January 3, 2022. REUTERS/Jonathan Ernst

President Biden during an event to discuss meat and poultry prices and corporate consolidation at the White House in January. (REUTERS/Jonathan Ernst)

President Joe Biden and his aides have highlighted specific instances of price hikes, focusing on industries like meatpackers, energy firms, and companies involved in the supply chain. They have focused on corporate consolidation in these industries as a key driver of higher prices.

Owens agrees that consolidation plays a role and adds that consumer expectations contribute, as well.

There’s “a very lucrative space between passing on input costs, which consumers understand and know need to happen in this moment, and the average consumer’s understanding of what those in input costs are,” she says.

The group is also releasing a new survey this week of 1,549 likely voters from Groundwork Collaborative and Data for Progress that finds 63% of respondents believe large corporations are “taking advantage of the pandemic to raise prices unfairly and increase profits.”

Even 51% of Republicans agreed with that sentiment.

‘Notably better than pre-pandemic margins’

The strong profit margins in 2021 have translated into a strong earnings season so far in 2022. LPL equity recently has found that resilient profit margins have helped companies mostly beat earning forecasts with strong earnings throughout the year.

The LPL researchers attributed the strong returns for investors to “a combination of surprising revenue strength and resilient profit margins.”

LPL Financial's research indicates S&P 500 earnings per share are tracking to a 31% year-over-year increase, about 10 percentage points above the consensus estimate when earnings season began.

LPL Financial’s research indicates S&P 500 earnings per share are tracking to a 31% year-over-year increase, about 10 percentage points above the consensus estimate when earnings season began.

Nicholas Colas, the co-founder of DataTrek Research, added in a recent report to investors that profit margins in Q4 2021 not only exceeded both Q4 2020 but also were “notably better than pre-pandemic margins, which averaged 10-11%.”

Companies themselves have often noted that they have enjoyed the power to raise prices, and maintain or grow their profits margins, because consumers are willing to pay.

“We’ve never had resistance when we raise prices,” Chipotle (CMG) CFO Jack Hartung recently told Yahoo Finance. But, he added, “We’d like to have that as more of our last resort, we’d like to find efficiencies, we’d like to find leverage in our margins as we grow sales.”

Other businesses, especially smaller ones, have not enjoyed the same pricing power. The latest NFIB small business survey finds small businesses becoming less optimistic in recent years amid declining earnings.

The official government data on corporate profits from the Bureau of Economic Analysis is scheduled to be released at the end of March.

Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.

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