Credit…Andrew Kelly/Reuters
A day after Walmart warned investors that its profits would shrink as higher prices force shoppers to shop less at its stores, Unilever, Coca Cola i McDonald’sthree other consumer-facing giants reinforced the message, to varying degrees, offering a window into how companies are navigating this fragile economic time.
On Tuesday, Unilever, the maker of Dove soap, Ben & Jerry’s ice cream and Hellmann’s mayonnaise, said it raised prices to 11 percent more than in the same quarter last year, offsetting a drop in 2 percent in the volume of things that consumers bought. It was the fourth consecutive quarter in which prices outpaced the company’s volume growth.
Unilever raised its revenue forecast this year but said its profit would likely be at the bottom of its expected range, held back by a sharp rise in prices for plastics, palm oil, aluminum and other basic products that it uses as inputs.
Alan Jope, chief executive of Unilever, said on a call with analysts that “peak cost inflation” will likely come in the second half of the year. Sales volumes may fall more in the second half than in the first, Mr. Jope, “as the full impact of price fixing came in”.
Passing on higher prices to shoppers has led some to buy less or switch to cheaper store brands, Unilever’s results suggested, a trend also seen in Walmart’s latest financial reports. To keep its higher-priced brands top of mind for consumers, Unilever said it added about $200 million to its marketing budget in the first half of the year, another factor that hit its profits. Investors appeared encouraged by Unilever’s ability to balance prices and costs, with its London-listed shares up nearly 3 percent.
Coca-Cola shares were also up 1.6 percent on Tuesday after reporting better-than-expected revenue growth in the second quarter, driven by a double-digit percentage increase of the prices Crucially, it also saw growth in the volume of drinks it sold, suggesting shoppers are sticking with favorite brands despite higher prices. In a similar vein, Unilever noted that it sold more ice cream in the quarter, one of its few product categories that posted volume growth.
Consumers’ willingness to pay higher prices “has largely held up better than expected,” Coca-Cola Chief Executive James Quincey said on a call with analysts. “We are watching closely for signs of changing consumer behavior as the year progresses and as the average cost of the consumer basket continues to rise.” Like Unilever and its closest rival, PepsiCo, which reported results this month, Coke raised its revenue forecast for the year.
And as with those companies, prices are rising faster than volumes, which, combined with rising freight and transportation costs, has hurt profits. Coca-Cola reported a 28 percent drop in profits in the second quarter, compared to the same period last year.
McDonald’s, the fast-food giant, said revenue at its restaurants, excluding those it sold in Russia, grew nearly 10 percent, partly due to “strategic menu price increases,” it said. Its shares rose 2.7 percent on Tuesday.
On a call with analysts, McDonald’s executives said that while consumers have generally accepted higher prices for Big Macs and other items, lower-income customers are beginning to shift to less expensive menu items, such as those in their “value” range, or by choosing fewer combo meal deals.
The situation in Europe is even murkier, McDonald’s executives acknowledged, as inflationary pressures are expected to remain elevated throughout the year. “Inflationary pressures in Europe are rising even beyond what we’re seeing in the US,” said Chris Kempczinski, McDonald’s chief executive, “and that’s having an impact on consumer sentiment and what we have to do from a menu. iron and prices.”
Upbeat parts of Tuesday’s earnings report weren’t enough to boost Walmart shares, which fell 7.6 percent, making it one of the worst-performing stocks in the S&P 500 for the day. The retail giant’s warning that it would have to continue to mark down unsold inventory because many shoppers were switching to cheaper, lower-margin products showed how quickly inflation has gripped the economy. Last month, Goal it also warned that its profits would be lower due to inventory markdowns.
The Federal Reserve is expected to act aggressively this week to curb stubbornly high inflation with another big interest rate hike, a move designed to cool consumer demand that may ultimately put the economy in recession
Concerns about the outlook for the global economy sent the S&P 500 down 1.2 percent. Consumer staples, the industry that includes Coca-Cola and Walmart, fell 0.5 percent, while consumer discretionary stocks, which include McDonald’s, fell further, down 3.3 percent.
Michael Corkery and Joe Rennison contributed reporting.
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