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Port congestion and labor deficit drive operating costs

The US earnings season is in full swing and almost 200 companies included in the Broad Market Index and the S&P 500 have reported on the past quarter. According to FactSet, Q3 2021 with record-setting net profit has now passed and we are witnessing a decline from 12.9% to 12.4% for Q4 2021. Furthermore, 72% of companies downgraded their Q1 2022 guidance, which is 12% higher than the five-year average percentage.

From our universe coverage the most dramatic decrease of margins happened to (FLWS). FLWS faced significantly higher delivery tariffs because of spot freight prices rising five to tenfold. In addition, the company also faced delivery delays, resulting in several large customers cancelling orders and the company losing tens of millions of dollars in revenue. But we are sure that quarter of high labor costs has passed and margins will start to increase in the second quarter. Current price of FLWS is good deal for investors.

Companies are reporting decreasing net profit margins
For 4Q 2021 net profit margins in almost all sectors began to decline after the record-setting 3Q 2021. It is worth noting that in such sectors as non-essential goods, real estate, and finance 4Q margins were already slightly lower than a year earlier.

Moreover, companies are increasingly pessimistic about the profit growth rate in the coming quarter. But what is the reason for the decline in net profit margins? 



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