Iron Mountain CEO Says “Pray for Inflation”

The CEO of Iron Mountain Inc. told Wall Street analysts at a September 20 investor event that the high levels of inflation in recent years had helped the company increase its margins – and that for that reason it had “done my dance.” of inflation by praying for inflation. ”

The comment is an unusually blunt admission of a dirty business secret: Companies are using inflation as a pretext to raise prices. “Companies are using those rising costs – of materials, components and labor – like apologies to raise their prices even higher, resulting in greater profits, “Robert Reich, former secretary of labor under Clinton recently said. Corporate profits are now at their highest level since 1950.

William Meaney, now CEO of Iron Mountain, photographed in Los Angeles in 2009.

Photo: Jamie Rector / Bloomberg via Getty Images

Iron Mountain is a Boston-based data storage and management company with a current market capitalization of $ 12 billion. According to its website, over 95 percent of the Fortune 1,000 are Iron Mountain customers. The founder of the company originally bought his first site, an exhausted iron mine, to grow mushrooms.
It wasn’t a one-time comment from Iron Mountain CEO William Meaney. In a 2018 earnings phone call, he invoked a Native American ritual, telling attendees that “it’s kind of like a rain dance, I pray for inflation every day I come to work because … our front line. it is really inflation driven. … Every inflation point expands our margins. ”

Iron Mountain CFO Barry A. Hytinen also said in an earnings call last April that “we have very strong pricing power” and for the company, inflation is “actually a net positive.” .

At the investor event on September 20, Meaney explained that “where we have had inflation running at fairly rapid rates … we are able to value before inflation,” meaning raising its prices at a higher rate. compared to recent inflation rates. As Meaney said, the price increase “obviously covers our higher costs, but … much of it runs to the bottom line.” He also noted that this didn’t just apply to his company: “People are seeing what FedEx, UPS, and others need to do to actually run their business and pass that inflation on.”

Later, in response to a question from a JPMorgan Chase analyst, Meaney explained that the company had “gone north of 200 basis points of price increase” – or 2% – amid the low inflation of the mid-year. 2010. But, she added, she had then hoped for inflation because “prices for us are actually slightly rising on the margin” with higher inflation.

Interestingly, both Meaney and Hytinen expressed momentary regret that what was good for Iron Mountain could be bad for everyone in general. “I wish I hadn’t danced so well,” Meaney said last week, “but it’s more on a personal basis than a business model.”

Hytinen told the participants in the earnings call that “we feel for the people” regarding inflation, but “we have a business with a high gross margin, so it naturally expands business margins.”

Remarks from Iron Mountain executives go straight to the question of who will pay in the United States to bring down the current high rates of inflation. Jerome Powell, chairman of the Federal Reserve, made it clear in May that his goal was “to lower wages and then lower inflation.” In other words, Powell wants regular workers to earn less, which would lower labor costs for businesses, which presumably wouldn’t raise prices like they have in recent years.

The degree to which corporate profits contributed to the price hike, and what to do about it, has been discussed by some Democrats in Congress and the Biden administration. Last year, President Joe Biden accused oil and gas companies of “anti-consumer behavior”, citing the fact that the two largest companies “are on track to nearly double their net income in 2019”. In May, Democrats introduced legislation to ban counterfeiting of prices by authorizing the Federal Trade Commission and state attorneys general to impose a federal ban on excessive price increases. But the general topic had only modest success in the media.

Almost all the news on inflation has pointed out that inflation is now at the highest rate in 40 years. Much less emphasis has been placed on the fact that corporate profits are currently at the highest rate in the past 72 years. The after-tax profits of non-financial corporations represented an average of about 5% of the gross domestic product of the United States from 1950 to 1980. They then declined to a new high in the 2000s. They currently stand above 8% of GDP. The 3 percentage point difference between 8% and the 5% average in the past makes up over $ 600 billion a year that could otherwise go to workers or cut prices.

Corporate profits after tax are currently at the highest rate in 72 years.

Lael Brainard, vice president of the Federal Reserve, referred to the issue of company price increases in a speech earlier this month. “The reductions in mark-ups”, he said, could “make an important contribution to reducing pressure on prices”. He continued:

Overall retail margins – the difference between the price retailers charge for a good and the price retailers paid for that good – increased significantly more than the average hourly wage retailers pay workers to stock shelves. and serving customers over the past year, suggesting that we may also be subject to reductions in retail margins. With gross retail margins of around 30% of sales, a reduction in currently high margins could make a major contribution to reducing inflationary pressures in consumer goods.

However, Brainard did not mention any Federal Reserve efforts to limit corporate profits. Although he does not formally possess any tools to do so, he does have a public pulpit and the ear of Congress. What he has, of course, are blunt tools for lowering wages and increasing unemployment, and he is using them with enthusiasm.

The Federal Reserve itself predicts a nearly 1 percent rise in unemployment next year, representing more than a million jobless people, following its aggressive interest rate hikes, the steepest in years. “While higher interest rates, slower growth and softer labor market conditions will reduce inflation, they will also bring some pain to households and businesses,” Powell said in a recent speech. “These are the unfortunate costs of reducing inflation.”

Neither Iron Mountain nor Meaney responded to requests for comment.

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