earnings reports

Big companies manage to pass on soaring costs to cash-strapped consumers

Reuters
Big companies manage to pass on soaring costs to cash-strapped consumers

NESCAFE. Jars of Nescafe Gold coffee by Nestle are pictured at the Nestle headquarters in Vevey, Switzerland, February 13, 2020.

Pierre Albouy/Reuters

Some of Europe's biggest companies report sales increases for the first quarter of 2022, with Nestle, Danone, and Akzo Nobel saying they were able to accomplish the gains while raising their prices

ZURICH, Switzerland – Makers of chocolate bars and coffee to lawn mowers and industrial robots succeeded in passing on soaring costs to consumers, first-quarter earnings showed on Thursday, April 21, allaying fears higher prices could dent demand for their products.

Some of Europe’s biggest companies reported first quarter sales increases, with KitKat maker Nestle, Evian water owner Danone, and Dulux paint maker Akzo Nobel saying they were able to accomplish the gains while raising their prices.

Engineering company ABB and gardening equipment maker Husqvarna also reported strong demand despite both increasing prices.

“Pricing power does exist. Across multiple categories. In European food, it is called Nestle,” said Bernstein analyst Bruno Monteyne.

Outside Europe, Tesla surged past Wall Street expectations on Wednesday, April 20, as higher prices helped insulate the electric vehicle maker from supply chain chaos and rising costs.

But while cheering investors, with Nestle, ABB, and Akzo Nobel enjoying share price gains, the strategy is stirring worries about households’ ability to cope and the outlook for the rest of the year.

Rising interest rates and lagging pay deals are squeezing consumers, who are seeing their disposable incomes shrink and shopping bills rise.

There have been some signs in US retail data that consumers have begun cutting back on discretionary spending amid high inflation and companies that thrived during the pandemic have lost some of their edge.

On Tuesday, April 19, Netflix blamed inflation, the war in Ukraine, and fierce competition on a loss of subscribers for the first time in more than a decade.

And while Nescafe owner Nestle was among the winners on Thursday, reporting a 7.6% rise in organic sales during the first three months of the year, its chief executive later warned that inflation has made its profit margin target more challenging.

Nestle beat a 5% average forecast for the sales measure that strips out currency swings and M&A deals in a company-compiled consensus thanks to price increases of 5.2%.

“We stepped up pricing in a responsible manner and saw sustained consumer demand,” the Swiss company, whose products include Purina pet food and Nespresso, said.

More hikes likely

Still the world’s biggest food group said the current price rises were unlikely to be the last.

“Cost inflation continues to increase sharply, which will require further pricing and mitigating actions over the course of the year,” Nestle added.

French peer Danone, whose product lineup includes Activia yoghurt and Evian water, said it was also ready for further rounds of price increases “if needed” after reporting a 7.1% sales increase late on Wednesday.

The world’s biggest yogurt maker benefited from price increases at the start of the year as well as easier comparisons and stronger demand for baby formula in China.

Higher prices could be a sensitive topic in its French home market where the cost of living crisis sets the tone for the presidential runoff between incumbent Emmanuel Macron and his right-wing challenger Marine Le Pen.

Price rises have also not hurt demand for Dutch paint and coatings maker Akzo Nobel, which beat quarterly core earnings estimates on Thursday while reporting a 17% increase in prices compared with a year earlier.

CEO Thierry Vanlancker said that the group’s “vigorous pricing initiatives” had helped it manage “the unprecedented variable cost inflation that impacted our industry during the quarter.”

Beyond the consumer area, factory robots and industrial drive maker ABB also reported a 21% jump in orders during its first quarter despite increasing prices.

CEO Bjorn Rosengren said there were was no end in sight to price increases for components and metals, as well as rising transport costs.

This meant ABB would have to continue to lift prices to deal with it, he said, although there was no sign of customers holding back from equipping their factories with new products.

“They are still placing orders, I guess they are accepting it,” Rosengren told reporters. “We are not the only one lifting prices, everyone is doing that in the market. That is the new reality.”

Also on Thursday, Husqvarna, the world’s biggest maker of gardening power equipment, said it was raising prices further this month in response to rising supply and energy costs and said it had no indication retailers were holding back.

“They accept the price increases,” Henric Andersson, CEO of the Swedish group, told Reuters after the earnings report. – Rappler.com