Unilever raised prices by more than 8% in the first quarter and warned that more hikes were on the way as the maker of Dove soap and Ben & Jerry’s ice cream lowered its cost inflation forecast for the second half of the year due to the Ukraine conflict. removed.
The company said it now expects cost inflation to reach 2.7 billion euros ($2.8 billion) in July-December, up from the previous estimate of 1.5 billion.
Consumer goods makers around the world are raising prices for rising energy, commodities, labor and transportation costs, with Ukraine struggling to recover from the pandemic as inflationary pressures are already mounting.
Unilever reported a 1% drop in sales volume in the first quarter, and some analysts worry it’s an early sign that cash-strapped consumers are switching to cheaper brands.
“As far as pricing and volume, I think we’re in uncharted territory,” Chief Executive Alan Jopp said on an earnings call. “While we are fully aware of the pressure on consumers, we believe it is the right thing to do to increase prices in response to this extreme commodity cost pressure.”
Analysts say that the prices are going to rise further.
Warren Ackerman of Barclays said Unilever’s full-year costs are “going to quadruple what they were a year ago. So the pricing has to be so high, and so the price is going to be very high.” “It’s not the peak.”
“The concern is what will happen to volumes when prices go up further?”
In the first quarter, Unilever increased prices the most in Latin America — 16.4% — and other emerging markets.
Unilever’s first-quarter underlying sales rose 7.3%, beating analysts’ average forecast of 4.4% in the company-supplied survey.
While prices rose 8.3%, sales volume declined 1%, dragged down by its home care business, which makes Comfort fabric softeners and CIF disinfectants. Analysts had expected a 6.3% increase in prices and a 1.7% drop in volumes.
Unilever now expects full-year underlying sales growth to be toward the top end of its 4.5-6.5% guidance range, but full-year underlying operating margin toward the low end of its 16-17% range.
Rivals Procter & Gamble (P&G) and Nestle have also posted strong sales growth in recent days after raising prices.
But P&G’s volumes grew 3% in the most recent quarter.
“What you’re seeing in terms of the competitive dynamics around volume is the gap in the category portfolio of products we sell,” Unilever Chief Financial Officer Graeme Pitkethley said in a call with reporters.
Unilever is particularly exposed to current price pressures. P&G’s products are not edible, while Unilever is affected by rising prices of soybean oil, cereals and other foods used in products ranging from Hellman’s ketchup to Knorr Stock cubes.
Although KitKat maker Nestle has also had to raise prices to make up for higher food costs, Unilever is more dependent on emerging markets, where inflationary pressures are strongest.
Unilever shares were up about 1% in early trading. The stock is down nearly 9% this year, during which time Unilever has faced criticism from some investors for focusing too much on sustainability, reshaping its business, and for GSK’s decision. The deal failed to secure a £50 billion ($62.7 billion) deal for the consumer. health business.
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