A day after Walmart warned investors that profits would shrink as rising prices forced shoppers to make fewer purchases at its stores, Unilever, Coca-Cola and McDonald’s, three other consumer-oriented giants, reinforced the message to varying degrees, providing a window. how companies navigate this fragile economic moment.
On Tuesday, Unilever, the maker of Dove soap, Ben & Jerry’s ice cream and Hellmann’s mayonnaise, said it has raised prices to 11 percent higher than the same quarter last year, marking a 2 percent drop in the volume of things sold. consumers buy was compensated. purchased. It was the fourth consecutive quarter in which prices surpassed the company’s volume growth.
Unilever raised its sales forecast this year, but said profits would most likely be at the lower end of its projected range, held back by a sharp rise in the prices of plastics, palm oil, aluminum and other raw materials it uses as inputs.
Alan Jope, Unilever’s CEO, said during a meeting with analysts that “peak cost inflation” was likely to come in the second half of the year. Sales volumes may fall more in the second half than in the first, Mr Jope said, “as the full impact of pricing lands.”
Passing on higher prices to shoppers has led some to buy less or exchange for cheaper store brands, Unilever’s results suggested, a trend also reflected in Walmart’s recent financial reports. To keep the higher end brands in consumers’ minds, Unilever said it added about $200 million to its marketing budget in the first half of the year, another factor that put a dent in its profits. Investors appeared buoyed by Unilever’s ability to balance prices and costs, with London-listed shares rising nearly 3 percent.
Frequently asked questions about inflation
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar won’t go as far tomorrow as it did today. It is usually expressed as the annual price change for everyday goods and services such as food, furniture, clothing, transportation, and toys.
Coca-Cola’s stock also traded higher on Tuesday, up 1.6 percent after it reported better-than-expected revenue growth in the second quarter, driven by a double-digit percentage rise in prices. Crucially, it also recorded growth in the volume of beverages sold, suggesting shoppers are sticking with favorite brands despite higher prices. In a similar vein, Unilever noted that it sold more ice cream in the quarter, one of the few product categories to record volume growth.
Consumer willingness to pay higher prices has held up “largely better than expected,” Coca-Cola CEO James Quincey said during a meeting with analysts. “We’re watching closely for signs of changing consumer behavior as the year progresses and as the average consumer basket cost continues to rise.” Like Unilever and its closest rival PepsiCo, who reported results this month, Coke raised its revenue forecast for the year.
And as with those companies, prices are rising faster than volumes, which, combined with rising raw material and transportation costs, is denting profits. Coca-Cola reported a 28 percent decline in second-quarter profits from the same period last year.
McDonald’s, the fast-food giant, said its restaurants, excluding those it sold in Russia, grew nearly 10 percent, due in part to “strategic menu price increases,” it said. The stock rose 2.7 percent on Tuesday.
Speaking to analysts, McDonald’s executives said that while consumers have generally accepted higher prices for Big Macs and other items, lower-income customers are beginning to trade for cheaper menu items, such as those in the “value range.” , or opt for fewer combo meal deals.
The situation in Europe is even more murky, McDonald’s executives acknowledged, as inflationary pressures there are expected to remain high throughout the year. “Inflationary pressures in Europe are even higher than what we see in the US,” said McDonald’s CEO Chris Kempczinski, “and that’s impacting consumer confidence and what we should do from a menu board and prices.”
The positive portions of Tuesday’s earnings reports weren’t enough to bolster Walmart’s stock, which fell 7.6 percent, making it one of the worst-performing stocks in the S&P 500 for the day. The retailer’s warning that it should continue to discount inventory that didn’t sell as many shoppers moved to cheaper, lower-margin products showed how quickly inflation is gripping the economy. Last month, Target also warned that profits would be lower due to inventory write-downs.
The Federal Reserve is expected to act aggressively this week to rein in stubbornly high inflation with another major rate hike, a move designed to cool consumer demand that could ultimately send the economy into recession .
Concerns over the outlook for the global economy caused the S&P 500 stock index to fall 1.2 percent. Consumer staples, the sector that includes Coca-Cola and Walmart, fell 0.5 percent, while consumer durables, including McDonald’s, fell further by 3.3 percent.
Michael Corkery and Joe Rennison reporting contributed.
