Input Costs Squeeze Margins Even as Demand Holds Firm
Companies describe resilient demand and steady capital spending this quarter, but input-cost inflation, hiring caution and consumer strain dominate what management teams disclosed.
Coverage: 166 of 168 companies in this theme (MU, CRDO, PLAB, AVGO, GSIT, AMBA, MRVL, SMTC, ALGM, MCHP, CRUS, AMAT, PRGS, BB, AI, ORCL, POWW, ACN, ADBE, NAVN, SAIL, IOT, GLOO, ESTC, MEI, AIOT, DELL, NTAP, P, PL, KEYS, CIEN, HPE, LOGI, FLEX, CSCO, REPL, MDT, CGC, COO, A, STE, HAE, ROIV, SPRY, PROK, IMRX, EYE, JBL, LEN, AVAV, KFY, WGO, AYI, DAKT, SWBI, LZB, GENC, PPIH, CMCO, KR, CCL, KMX, CASY, PLAY, AZO, BBW, SFIX, LOVE, RH, OXM, BKE, MSB, WLTH, WRLD, FRHC, STEP, APPS, CRVL, HLI, HLNE, CSWC, SLNH, ORBS, FCCO, OPBK, GBFH, FBLA, FXNC, NKSH, AVBH, FCAP, PRK, WAL, NFBK, NGL, PNRG, NUAI, NINE, TBN, INR, SMC, SDRL, NGS, EGY, OVV, KGS, GNE, CDZI, GWRS, VG, CWCO, CEG, OPAL, VST, AEE, HE, PPL, ARTNA, ATEX, WLY, IDT, MTN, VSAT, RSVR, LION, VENU, SIDU, SPIR, STUB, DJCO, APOG, CMC, FUL, NG, UEC, NX, REX, CSW, SKY, CVCO, ELF, ALOY, NXDT, MLP, SKYH, NHP, BOC, FRPH, STRS, LAND, AGNT, TRC, AIV, SPG, MKC, BF-A, SJM, LMNR, CPB, MAMA, AVO, HRL, FLO, LWAY, BGS) — a sample, not the full set.
Demand held up across the 168-company domestic sample this quarter: 75 of 152 quote-grounded demand statements were positive against 50 negative and 17 mixed, the broadest positive tilt of any category tracked. Pricing power moved with it, with 46 positive statements against 29 negative out of 91, showing companies still passing through costs or capturing higher average selling prices. That resilience sits on top of the sharpest cost complaint in the sample: input costs drew 212 statements, and 165 of them, better than three in four, were negative, the most lopsided reading of any category. Companies described tariffs, freight, royalties and rising compensation squeezing margins even as they raised prices to compensate.
Hiring told a more cautious story, with only 16 of 71 statements positive against 40 negative, as restructuring and cost discipline showed up far more often than expansion. Capital spending held steady rather than retreating, with 46 positive statements against just 15 negative and a plurality of 53 neutral, suggesting companies are funding roadmaps even as they trim headcount elsewhere. Inventory commentary was thin and split across 28 statements, with no dominant restocking or destocking signal. Consumer-facing companies flagged the most strain relative to category size, with 27 of 41 consumer-behavior statements negative, pointing to trade-down and confidence pressure. Outlook statements came in almost evenly divided, 57 positive, 52 negative, 21 mixed and 19 neutral out of 149, meaning management teams were about as likely to describe conditions improving as deteriorating.
Semiconductors posted the most upbeat demand readings of any bucket, 9 of 13 statements positive, anchored by Micron Technology (MU), which described AI-driven data-center demand growing faster than the industry's ability to supply it. That scarcity showed up directly in pricing, with Micron citing higher average selling prices and improved profitability across its DRAM and NAND portfolio, part of a 4-2 positive tilt in sector pricing power. Credo Technology Group Holding (CRDO) added to the supply-tightness read, building inventory to support a growing backlog and new product ramps. Input costs still skewed negative for the group (5 of 8), and hiring commentary leaned toward higher compensation rather than headcount growth, with Micron citing increased employee compensation driving SG&A higher.
Software and cloud names showed clear input-cost strain while managing headcount deliberately. Progress Software (PRGS) cited higher royalty costs and continuing MOVEit-related expenses pushing costs up, while BLACKBERRY (BB) pointed to higher salaries, incentive plans and consulting fees lifting R&D and sales spending. Both companies cut costs elsewhere too: Progress trimmed contractor and headcount costs in its services business, and BlackBerry cut G&A 19% on lower restructuring charges. That mix helps explain why the sector's 12 hiring statements broke 6 positive to 5 negative, closer to even than the national split. Outlook statements skewed positive, 6 of 11, with Progress affirming its cash position covers obligations for at least a year.
Hardware and device makers combined firm demand with the sample's most one-sided input-cost complaint, 14 of 16 statements negative. Methode Electronics (MEI) flagged new tariffs on raw materials and components pressuring margins and said it partially offset the hit through negotiated price adjustments and cost-recovery arrangements with customers, while acknowledging it has been unable to fully pass through inflation. Methode also linked slower EV adoption, following the end of certain federal tax incentives, to underused capacity. Powerfleet (AIOT) took the opposite tack on spending, cutting discretionary operating expenses and capital expenditures to preserve cash while product revenue declined on a shift toward bundled services and higher U.S. tariffs. Outlook statements for the group still ran positive, 8 to 4.
Healthcare and pharma carried the heaviest cost load of any bucket relative to size, 18 of 23 input-cost statements negative. Medtronic (MDT) put a number on it, estimating a $250 million pre-tax net tariff impact for fiscal 2027 after tariffs and duties already added $185 million to cost of products sold, and flagged the Middle East conflict as a further risk to energy and transportation costs. Replimune Group (REPL) illustrated the hiring side, expecting SG&A to keep rising as it staffs up for potential commercial launch even as R&D costs climbed on expanded trial enrollment. That pattern is consistent with the sector's 6-to-1 negative hiring tilt. Outlook statements ran negative overall, 6 of 9.
Industrials split almost evenly on pricing power, 5 positive and 5 negative of 12, but leaned hard negative on costs, 12 of 14 input-cost statements unfavorable. Lennar (LEN) captured the tension directly, describing underlying housing demand as real and growing while supply stays structurally short, even as margins remain under pressure from incentives needed to reach affordability-constrained buyers; the homebuilder also reported a meaningful pullback in incentives this quarter and continuous improvement in construction costs and cycle times. Jabil (JBL) built inventory deliberately ahead of expected third-quarter sales. Consumer-behavior statements in the bucket ran 4 of 5 negative, with Lennar citing higher energy costs weighing on household budgets and confidence.
Retailers reported the group's widest cost complaint, 13 of 19 negative, alongside comparatively resilient pricing power, 7 of 13 positive. Kroger (KR) said it expects higher annualized product-cost inflation in 2026 than 2025 and that gross margin rates absorbed higher transportation costs, egg deflation and increased price investments, while citing cost-savings initiatives aimed at administrative and store-level efficiency. Carnival (CCL) showed both sides of consumer behavior at once, reporting higher onboard spending by guests alongside fuel-cost volatility and new EU emissions-trading costs of $91 million in 2025. Outlook statements for the bucket were the most hedged in the sample, split 1 positive, 4 negative, 3 mixed and 1 neutral of 9.
Financial-services demand ran positive, 7 of 12, but outlook statements were the most negative of any bucket, 8 of 14. Mesabi Trust (MSB) said it received no bonus royalty revenue in the first quarter and could not project whether iron-ore prices would clear the threshold needed to trigger future payouts. Wealthfront (WLTH) expects cost of revenue to keep rising in absolute terms while improving as a share of revenue as its platform scales, and separately flagged higher expenses tied to operating as a public company. World Acceptance (WRLD) cited higher headcount, salary expense and field-level incentives lifting personnel costs, consistent with the sector's negative hiring tilt.
Banks reported a smaller but similarly cost-heavy pattern, 7 of 11 input-cost statements negative. OP Bancorp (OPBK) closed four loan-production offices citing limited market demand and said the current rate environment is complicating loan demand, deposit pricing and funding costs together. GBank Financial Holdings (GBFH) said it is watching credit quality given tariff-policy uncertainty and persistent inflation and may need to raise credit-loss provisions, even as it added staff and reported higher data-processing costs tied to loan and deposit growth. First Community (FCCO) was an exception on costs, noting its cost of funds fell as deposit market rates declined.
Energy demand statements were the most volume- and weather-sensitive of the sample, splitting 8 positive to 7 negative. NGL Energy Partners (NGL) illustrated the swings directly, citing cold weather lifting propane demand and prices in one quarter while a weak gasoline blending season cut butane volumes in another, and said it had to buy spot barrels at higher prices during a cold snap to fill term obligations, compressing margins. Sector input costs skewed negative, 13 of 17, but outlook statements notably carried no outright negative reading, 5 positive and 6 mixed of 14, with NGL expecting commodity-price volatility to persist rather than resolve in either direction.
Utilities combined the sector's most positive pricing power, 7 of 14, with the most negative input-cost reading, 13 of 14. Genie Energy (GNE) showed the mechanics: natural-gas unit costs fell 31.8% in 2024, lifting gas margins, while electricity margins compressed because customer rates fell faster than rising supply costs, and electricity costs then rose again in early 2026 on general market conditions. Genie also reported higher marketing, customer-acquisition and headcount costs lifting SG&A, and customer churn ticking up to 5.4% from 4.9%. Outlook statements for the bucket ran positive on balance, 4 to 1.
Media and communications companies reported not a single positive input-cost statement, 9 of 10 negative and the remainder mixed. John Wiley & Sons (WLY) cited higher royalty costs, including AI-license royalties owed to other publishers, offsetting savings from lower inventory costs in its Learning segment, while cutting operating and administrative expenses through restructuring that reduced headcount and professional fees and shrinking its real-estate footprint by roughly 35%. Wiley's own AI-license revenue grew, to $49.1 million from $40 million a year earlier. IDT (IDT) said existing cash and cash flow should cover working-capital and capex needs through April 2027, part of a sector outlook mix that leaned positive, 4 of 8.
Materials and chemicals companies reported the strongest demand and pricing combination in the sample, 9 of 14 demand statements positive and 6 of 9 pricing statements positive, against a cost backdrop still mostly negative, 13 of 17. Apogee Enterprises (APOG) said its Performance Surfaces unit grew sales on higher volume and favorable price even as adjusted EBITDA margin there slipped on higher material and freight costs; the company's Architectural Services backlog grew to about $734.5 million from $682.9 million. Commercial Metals (CMC) expects tariffs to have only a modest direct effect on operating and capital costs because it sources domestically, while still citing rising fuel costs and higher European energy costs. H.B. Fuller (FUL) said pricing gains lifted gross margin 190 basis points even as sales volume declined.
Real estate logged the only bucket with zero positive input-cost statements, 16 of 18 negative and the rest mixed. Nexpoint Diversified Real Estate Trust (NXDT) said high rates and tighter, costlier credit have made property acquisitions harder to finance and warned inflation could push operating expenses up faster than rental revenue, while noting its hospitality segment saw reduced travel demand and occupancy tied to inflation. Maui Land & Pineapple (MLP) cited higher insurance, maintenance and leasing-commission costs lifting its own operating expenses, alongside wildfire-related declines in tourism revenue that management expects to recover to pre-wildfire levels by 2026 or 2027. Demand statements for the bucket were still net positive, 8 of 14.
Food, beverage and tobacco carried one of the sample's most negative outlook mixes, 7 of 14 negative versus 5 positive, even as pricing power was evenly split. McCormick & Company (MKC) expects 2026 net sales to benefit from favorable volume, mix and pricing while flagging unfavorable volume in the Americas so far this year and inflation, including Middle East-conflict-related costs, offsetting the benefit of tariff refunds. Brown-Forman (BF-A) said macroeconomic pressure and geopolitical instability are weighing on consumer alcohol consumption in developed markets, even as it lowered brand-value forecasts citing a softening category outlook; gross margin still improved on lower costs and currency effects. Consumer-behavior statements for the bucket were the most negative in the sample, 4 of 5.
Across every bucket, the same arithmetic holds: pricing and demand gains are keeping revenue lines intact, while the bill for labor, materials and tariffs keeps arriving faster than the relief companies describe as coming.