Makers of Dove Soap, Nescafe Are Raising Prices Again -- 2nd Update
18 Oktober 2018 - 2:56PM
Dow Jones News
By Saabira Chaudhuri
Two of the world's largest consumer-goods companies, Unilever
PLC and Nestlé SA, reported stronger sales as a wave of inflation
in many markets emboldened them to raise prices.
The new pricing power gives a boost of confidence to the entire
industry, which has struggled in recent years with fierce
competition and rapidly changing consumer tastes.
Unilever, the maker of Hellmann's mayonnaise and Dove soap, on
Thursday said third-quarter sales climbed 3.8% on an underlying
basis, with prices up 1.4%. Nestlé, which makes Kit Kat chocolate
and Nescafe coffee, reported organic sales up 2.9% for the quarter,
saying prices grew by 0.9%.
Both companies' figures exclude the impact of currency changes
and acquisitions and disposals. Neither reported profits figures.
Shares in Unilever fell 1.2%, while Nestlé rose 0.4%.
Many consumer goods makers have in recent quarters struggled to
raise prices amid weak inflation, Amazon.com Inc.'s growing prowess
in selling more household staples, and a decline in brand loyalty
as consumers use the internet to shop around. A shift to discount
retailers, from dollar stores across the U.S. to European
discounters like Germany's Aldi, has further pushed down
prices.
But inflation, especially in emerging markets, is changing the
picture.
"The combination of underlying commodity increases but also the
stronger U.S. dollar is really putting a lot of inflation into our
market," said Unilever Chief Financial Officer Graeme Pitkethly. "I
see pricing being a key feature of the entire sector through the
balance of the year and in 2019."
After years of falling or stagnant consumer prices, inflation in
some major markets has moved closer to a sweet spot where companies
can raise prices, without it being so high that interest rates rise
rapidly, hurting consumers.
Annual U.S. inflation is running at 2.3%, after approaching 3%
over the summer, slightly above the 2% rate many central banks
consider optimal. The Federal Reserve has gradually raised rates
over the past two tears. Official Chinese data showed annual
inflation at 2.5% last month, a seven-month high, while eurozone
inflation was 2.1% last month.
Unilever said price rises were particularly strong in emerging
markets, to offset commodity increases. Both companies said prices
rose in the U.S., although in Western Europe they cut prices.
Kimberly-Clark Corp., which makes Huggies diapers and Kleenex
tissues, in August said it was raising prices in North America to
offset higher commodity costs. It reports third quarter results
next week.
Procter & Gamble Co. reports fiscal first-quarter results
Friday. The maker of Tide and Bounty has grappled with fierce
competition in categories like hair care and laundry detergent,
forcing it to keep a lid on prices. In July it reported prices in
the fourth quarter dropped 2%.
In developed markets, Unilever said underlying third-quarter
sales climbed by 1.3%, driven mostly by volume gains. Emerging
market sales jumped 5.6% as Unilever was able to raise prices by
2.1%. The results exclude pricing in Argentina, which is going
through a period of hyperinflation. The company raised prices there
by 34% in the third quarter while volumes dropped 10%.
Overall Unilever's third-quarter sales came in at EUR12.5
billion ($14.4 billion).
Finance chief Mr. Pitkethly said investing in brands was key in
an inflationary environment to ensure that volumes continue to grow
even as the company raises prices.
"We got to get the price moving but keep volume first," he said.
"The true test of the strength of a brand is the ability to price
and give a degree of inflation protection."
Switzerland-based Nestlé said third-quarter sales came in at
22.5 billion Swiss francs. Revenues were held back in part by the
strength of the Swiss franc against emerging-market currencies,
which weakened foreign sales when they were translated into
francs.
Jefferies analyst Martin Deboo noted that Nestlé's third-quarter
pricing was ahead of forecasts and a sharp improvement from the
0.2% growth it reported in the first half, which he said bodes well
for profit margins.
Nestlé said higher pricing in the third quarter reflected
inflation in commodity and freight costs in North America.
--Brian Blackstone contributed to this article.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
October 18, 2018 08:41 ET (12:41 GMT)
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