Big companies manage to pass on soaring costs to cash-strapped consumers
ZURICH, April 21 (Reuters) – Makers of chocolate and coffee bars, lawnmowers and industrial robots have managed to pass soaring costs onto consumers, first-quarter results showed on Thursday, dispelling fears that higher prices dampen demand for their products.
Some of Europe’s biggest companies reported sales increases in the first quarter, KitKat maker Nestle (NESN.S), Evian water owner Danone (DANO.PA) and paint maker Dulux Akzo Nobel (AKZO.AS) claiming they were able to accomplish the gains while increasing their prices.
Engineering firm ABB (ABBN.S) and gardening equipment maker Husqvarna (HUSQb.ST) also reported strong demand despite rising prices.
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“Pricing power exists. In several categories. In European food, it’s called Nestlé,” said Bernstein analyst Bruno Monteyne.
Outside Europe, Tesla (TLSA.O) beat Wall Street expectations on Wednesday as higher prices helped insulate the electric vehicle maker from supply chain chaos and rising costs. [nL3N2WI3AV]
Major U.S. airlines United Airlines Holdings Inc (UAL.O) and American Airlines Group Inc (AAL.O) said high fares have not hampered domestic travel demand. Both companies expect a return to profitability. Read more
“The demand environment is very strong,” American Airlines Chief Executive Robert Isom said in a statement.
But while encouraging investors, with Nestle, ABB and Akzo Nobel enjoying share price gains, the strategy raises concerns about households’ ability to cope and the outlook for the rest of the year. Read more
Rising interest rates and delayed wage settlements are weighing on consumers, who are seeing their disposable income shrink and shopping bills rise.
There have been signs in U.S. retail data that consumers have started to cut discretionary spending amid high inflation and businesses that have thrived during the pandemic have lost some of their advantage. Read more
On Tuesday, Netflix Inc
And while Nescafé owner Nestlé was among the winners on Thursday, reporting a 7.6% increase in organic sales in the first three months of the year, its CEO later warned that the inflation had made his profit margin target more difficult. Read more
Nestlé beat an average forecast of 5.0% for the sales measure that excludes currency fluctuations and mergers and acquisitions transactions in a consensus compiled by the company thanks to price increases of 5.2%.
“We have raised prices responsibly and have seen sustained consumer demand,” said the Swiss company, whose products include Purina and Nespresso pet foods.
Still, the world’s biggest food group said the current price hikes were unlikely to be the last.
“Cost inflation continues to rise sharply, which will require further pricing and mitigation measures during the year,” added Nestlé.
Its French counterpart Danone, whose product range includes Activia yoghurt and Evian water, said it was also ready for further price increases “if necessary” after announcing a sales increase of 7, 1% Wednesday night. Read more
The world’s largest yogurt maker benefited from price increases earlier this year as well as easier comparisons and stronger demand for infant formula in China.
Rising prices could be a hot topic in its French home market where the cost-of-living crisis is setting the tone for the presidential run-off between incumbent President Emmanuel Macron and his right-wing challenger Marine Le Pen. Read more
The price hikes also haven’t hurt demand from Dutch paints and coatings maker Akzo Nobel, which beat core quarterly earnings estimates on Thursday while reporting a 17% rise in prices per month. compared to the previous year.
CEO Thierry Vanlancker said the group’s “vigorous pricing initiatives” helped it manage the “unprecedented variable cost inflation that impacted our industry during the quarter”.
Beyond the consumer realm, factory robots and industrial drive maker ABB (ABBN.S) also reported a 21% rise in orders in its first quarter despite rising prices. Read more
CEO Bjorn Rosengren said there was no end in sight to price increases for components and metals, as well as rising transportation costs.
That meant ABB would have to keep raising prices to deal with it, he said, although there were no signs that customers were holding back on outfitting their factories with new products.
“They keep placing orders, I guess they accept it,” Rosengren told reporters. “We’re not the only ones raising prices, everyone in the market is doing it. That’s the new reality.”
Also on Thursday, Husqvarna (HUSQb.ST), the world’s largest maker of power gardening equipment, said it was raising prices further this month in response to higher supply and higher gardening costs. energy and said he had no indication retailers were holding back.
“They accept the price increases,” Henric Andersson, CEO of the Swedish group, told Reuters after the results were released.
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Reporting by John Revill, Silke Koltrowitz, Valentine Baldassari, Anna Ringstrom and Dominique Vidalon, and Doyinsola Oladipo Writing by John Revill Editing by Josephine Mason, Tomasz Janowski and Marguerita Choy
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