US companies plan price hikes as inflationary pressure mounts

US companies plan price hikes as inflationary pressure mounts

Andre Schulten, P&G’s chief financial officer, said the increase in commodity costs the company was experiencing was one of the largest he had seen in his career, and he expected the pressure to grow. Executives at Coca-Cola, Chipotle and appliance maker Whirlpool, as well as household brand behemoths Procter & Gamble and Kimberly-Clark, all told analysts in earnings calls last week that they were preparing to raise prices to offset rising input costs, particularly of commodities.

P&G’s US baby care, feminine care and adult incontinence businesses had already announced “mid- to high single-digits” price increases that would go into effect in September, he said, “and we are assessing the need for additional pricing moves”. Whirlpool said it was planning price rises of between 5 per cent and 12 per cent to offset what it expected to be a $1bn hit this year from higher input costs. Pentair, the water filtration and equipment maker, has already raised prices across its products.

John Hartung, chief financial officer at Chipotle, who flagged rising labour costs as a potential risk to profit margins, predicted: “Everybody in the restaurant industry is going to have to pass those costs along to the customer.” And tools manufacturer Snap-on notified customers that heftier price tags were on their way earlier this month, as it works to protect margins on behalf of shareholders. “This is what they pay us for — to manage this stuff,” said Nicholas Pinchuk, chief executive of Snap-on.

“We’ve got a tried and true practice of being able to take pricing in line with inflation,” said John Murphy, chief financial officer at Coca-Cola, which is facing margin pressures from rising costs for key commodities such as high fructose corn syrup and packaging materials. Executives’ confidence that they will be able to pass on price rises in part reflects the strength of the recovery from the coronavirus pandemic, and robust consumer spending.

For the roughly 25 per cent of companies in the S&P 500 that have reported their first-quarter results so far, the rise in commodity prices has become one of the most-cited headwinds to what is otherwise shaping up to be a lavish earnings season. Earnings per share is on course to be up 33.8 per cent from the first quarter of last year, the highest annual increase in a decade, according to FactSet data. Financial markets have been signalling higher inflation since the beginning of the year. In March, the US consumer price index jumped 0.6 per cent from February, the quickest pace in almost a decade.

In a survey last month, the National Association of Manufacturers found that 76 per cent of its members saw increased raw materials costs as their biggest challenge in 2021. Recommended Lumber last week reached its highest price ever, after rallying close to 60 per cent since the start of the year. Copper, aluminium and Brent crude have all risen sharply since January, by about 20 per cent or more in each case.

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