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Magnum Pot maker Unilever says costs have skyrocketed – and is already pushing prices up |  Economic news


Every day, it seems, there is new evidence of inflation taking off – whether it’s soaring oil prices, prices for building materials, or rising costs. paper and packaging.

Today, however, brought one of the warnings Again.

Unilever, one of the world’s largest producers of food, beverages, beauty products and consumer goods, today made no less than eight separate references to inflation in its half-year earnings release, stating the consequences of rising input costs.

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Unilever’s half-year profits fell 3.5%

Alan Jope, Managing Director of Unilever, said: “We saw new cost inflation emerge in the second quarter (April to June)… we are managing this aggressively.

In other words, consumers should prepare for price increases from a company whose brands range from Ben & Jerrys, Wall’s and Magnum ice creams to Colman’s mustard, PG Tips tea, Marmite spread, Dove soap, Lynx deodorant and Comfort fabric softener.

These price increases, in fact, are already being felt.

Mr Jope told analysts this morning that in June, average prices rose 2%.

Some details of the increased cost of inputs are surprising.

Graeme Pitkethly, chief financial officer of Unilever, reminded analysts that latest commercial update in April, he warned that raw material price increases of 10-15% in the second half of the year could be expected.

Magnum Pot maker Unilever says costs have skyrocketed – and is already pushing prices up |  Economic news
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Managing Director Alan Jope said that in June, average prices increased by 2%

Since then, he said, Unilever has seen further price increases due to rising costs for crude oil, packaging and, in particular, transportation and distribution costs.

He noted that, since April, the price of crude oil has risen 14% and is currently up 60% year-over-year.

Mr Pitkethly added: “Similar to crude, soybean oil accelerates inflation.

“It’s an important ingredient for us in categories such as dressings.

“Soybean oil prices increased a further 20% in the last quarter and are now up 80% from last year.

“The increase is due to increased demand, coupled with a poor soybean harvest in the United States in 2020.

“The price of palm oil, a key ingredient in our skin cleansing products, is now 70% higher than the long-term average, with increased demand and lower crop yields pushing up the market. price. “

Mr Pitkethly said Unilever had already taken “significant tariff action” in key markets, but had to keep accessibility for consumers in mind at a time when much of the world was suffering from difficult economic circumstances.

Magnum Pot maker Unilever says costs have skyrocketed – and is already pushing prices up |  Economic news
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Ben & Jerry’s board of directors has ruled that the brand will not be sold in the occupied Palestinian territories

He said the company is now raising its input cost inflation forecast for the second half of the year to between 15 and 19 percent.

“We have been and will continue to pull all the levers of pricing and economy,” added Pitkethly.

The warning highlighted that Unilever’s underlying sales rose 5% better than expected in the April-June quarter and that the company’s shares – the second largest in the FTSE 100 – rose dropped 5% at one point.

Alicia Forry, analyst at investment bank Investec, said: “It’s slightly disappointing as they were confident they could pass on cost inflation in the first quarter.

“Now they’re changing their tone.

“This margin issue will overshadow the strong underlying performance in the first half of the year.”

Overall, Unilever reported a 3.5% drop in half-year pre-tax profit to 4.4 billion euros, with sales rising three tenths of 1% to 25.8 billion euros.

Mr. Jope highlighted a particularly strong performance of the Knorr and Hellmanns brands.

Magnum Pot maker Unilever says costs have skyrocketed – and is already pushing prices up |  Economic news
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Unilever shares fell during the update

Ice cream sales were also buoyant, both for in-home and out-of-home consumption, with Jope citing sales growth of more than 10% in Turkey, China and India.

He said this was helped by new product launches and promotions, including Miley in Layers, a campaign for Magnum with singer Miley Cyrus.

Among other developments, Mr Jope confirmed that the separation of Unilever tea business, which besides PG Tips also includes Lipton, was “essentially full” of what should be either a sale or an IPO.

Mr. Jope also believes long-term trends will help the company.

He expects the trend of home cooking, which was established during the pandemic, to continue as sales of some personal care products that plummeted during shutdowns, as customers stayed at home. , will begin to recover as socialization resumes.

Mr Jope said Unilever is already seeing a recovery in sales of some skin care, hair care and some deodorant brands.

As an example, Vaseline and Ponds, the two skin care products, both increased their sales by more than 10%.

The Dirt Is Good advertising campaign for Persil laundry powder also continues to drive sales.

Magnum Pot maker Unilever says costs have skyrocketed – and is already pushing prices up |  Economic news
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Magnun sales helped by tie-up with Miley Cyrus

All of these positive developments, however, are currently overshadowed by the nagging question of how easily Unilever can pass on the cost increases it suffers from.

Mr Pitkethly spoke today about the “Eternal Triangle of Competitiveness, Inflation and Price and the Landing Price Timeline [increases] to compensate for inflation “.

The company can also take comfort in the fact that it is not alone.

All of the other major global consumer goods companies, including Nestlé and Procter & Gamble, are expected to experience similar difficulties.

To that end, it was significant that Mr Jope pointed out today that Unilever is simply trying to pass cost increases where it can.

He said that where Unilever has a leading position in the market, it would expect to be among the first players in that particular market to raise its prices.

But he insisted, “We believe that at the end of the day, when the dust settles, our relative prices will not have changed.

“It is not our expectation or intention to change our relative prices.”

Magnum Pot maker Unilever says costs have skyrocketed – and is already pushing prices up |  Economic news
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The price of oil has risen sharply

Meanwhile, the company has another problem in the form of Ben & Jerry’s, the ice cream brand.

When Unilever bought the company 21 years ago, it signed an unusual deal with its founders, Ben Cohen and Jerry Greenfield, which created an independent board of directors to retain control of the brand’s social mission. , giving the board control over where the product is sold.

The board has has just decreed that the brand will not be sold in the occupied Palestinian territories, sparking fury in Israel, whose new Prime Minister, Naftali Bennett, has warned Unilever of “serious consequences”.

Mr Jope, who spoke by phone to Mr Bennett to discuss the matter, today agreed that it was a “complex and sensitive matter”.

But he stressed to analysts: “If there is one message I want to underline in this appeal, it is that Unilever remains fully engaged in our affairs in Israel.

However, as Unilever grapples with higher inflation, Ben & Jerry’s problem is a headache the company could do without.



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