A year ago, analysts thought steelmaker ArcelorMittal would be lucky to make $ 2 billion in net profits in 2021. Their estimates turned out to be more than pessimistic: the Luxembourg company is expected to declare around $ 14.5 billion in profits, more than the last 13. years combined.
Compared to the $ 240 billion in profits that US tech giants Apple Inc, Google parent company Alphabet Inc and Microsoft Corp will share this year, the loot may seem insignificant, but make no mistake: the biggest European companies are for the most part doing extraordinarily well and their good fortune seems poised to continue.
After jumping 67% in 2021 to levels surpassing pre-pandemic highs, earnings per share of Stoxx 600 companies are expected to rise about 6% next year, according to Bloomberg Intelligence. On average, operating profit margins are expected to reach around 15% in 2022, the highest in more than a decade.
These profits strengthen balance sheets and help finance vital decarbonization investments. Shareholders can also expect large dividends and share buybacks.
But what about the employees? With their purchasing power eroded by soaring consumer prices, they must ask themselves when, if ever, they will pocket their fair share. They could wait a while.
Given all the talk about supply chain bottlenecks and raw material cost inflation, one would expect corporate profits to be under real pressure. In reality, industrial companies seem to be doing very well. They tightened their spending at the start of the covid pandemic and now a combination of high demand and low inventory levels has helped them cope with price increases, thus increasing their profits.
In automobiles, the availability of semiconductors held back production and suppliers struggled, but automakers focused on producing their most profitable vehicles, such as limousines and SUVs. The Mercedes-Benz automotive unit expects an operating return on sales of between 10% and 12% in 2021, very high by recent standards, and it’s no wonder. Average selling prices hit nearly $ 62,000 per vehicle in the last quarter, according to Berenberg. Average prices will remain 20% above pre-pandemic levels next year, analysts at the bank believe.
Automakers have enjoyed a second dose of luck. When leased vehicles are returned, they are usually worth much more than budgeted due to the widespread shortage of used vehicles, making their financial services more profitable.
Metals and energy prices have jumped this year, making it a decent time to be an oil producer or miner. These companies often face pressure from shareholders not to spend too much to develop new resources. Therefore, they throw away a lot of money that can be returned to shareholders. Swiss commodities and commodities trader Glencore on track to generate nearly $ 10 billion in free cash flow in 2021; and 2022 looks even better.
Thanks in part to the impact of the € 750 billion European stimulus fund, euro area gross domestic product growth is expected to slow only slightly next year to just over 4%. Interest rates are not expected to rise much anytime soon. Thus, the borrowing costs of businesses will remain low. Exporters are also expected to take advantage of the weak euro, which makes their products cheaper for foreign buyers.
While cost inflation doesn’t seem like a big deal for businesses, it sure is for workers. You would expect employees to negotiate for a higher pay, especially when they see how profitable their employers have become.
Granted, Germany’s new coalition government plans to raise the minimum wage by 25%, but wage deals between unions have so far been rather meager. Leave programs have avoided job losses in Europe during the pandemic, but that means there aren’t as many people starting new jobs, that is, when workers are better placed to negotiate a higher salary, Bloomberg Economics notes. It will be a decent year for employee profit sharing and similar staff pay, but any broader rebalancing of returns to capital and labor is likely to be quite modest.
In recognition of their hard work in keeping supply chains moving this year, AP Moller-Maersk employees can expect a bonus of $ 1,000. These payments will cost the world’s largest container shipping company nearly $ 100 million. But Maersk can certainly afford it: it’s on track to report $ 17 billion in net profit in 2021, the highest profit on record in the Danish company’s history. Thanks to consistently high freight rates, next year should be almost as good.
Chris Bryant is a Bloomberg Opinion columnist covering industrial companies.
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