Price rises slow, but Unilever and others struggle to win shoppers back
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[October 26, 2023] By
Richa Naidu
LONDON (Reuters) -Packaged goods makers including Unilever and Nestle
disappointed investors with weak third-quarter sales volumes, but that
could change in the coming months as price increases moderate.
Companies have hiked prices since the COVID-19 pandemic to make up for
higher costs, prompting some shoppers to look for better deals. The
slide in sales volumes of big brands only grew worse after the Ukraine
war sparked a cost of living crisis.
Top U.S. and European investors this year have flagged their concerns
about high prices to consumer goods companies. But even though prices
are beginning to moderate, consumers have not rushed back.
Companies need to do more to convince investors that sales volumes can
return to growth, Richard Saldanha, an Aviva portfolio manager, said in
an interview.
"Across the board, organic growth has been price driven and what we want
to see is more of a balance between volume and price," he said, noting
the cost of raw materials has decreased and that he hopes prices
moderate as a result.
On Thursday, Unilever met market expectations for third-quarter sales
growth after raising prices at a slower rate.
"In terms of where pricing is going from here, I think we'll see a
continued fall in underlying price growth, but I don't think that's
going to go negative," Chief Financial Officer Graeme Pitkethly said.
Europe was a particular pain point, with sales volumes tumbling 10.7%.
"It's the most difficult trading environment," Pitkethly said.
Unilever's stock fell 2.5% to a year-low in morning trading.
'UNDERWHELMING'
Nestle, the world's biggest packaged food maker, last Thursday posted
lower-than-expected nine-month sales growth as higher product prices
made shoppers balk.
Similarly, Tide detergent maker P&G this month reported weak sales
volumes, but said this was stabilizing and would start to pick up.
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Hellmann's, a brand of Unilever, is seen on display in a store in
Manhattan, New York City, U.S., March 24, 2022. REUTERS/Andrew
Kelly/File Photo
Shares in Reckitt also fell by about 2% when the maker of Dettol and
Lysol cleaning products on Wednesday missed third-quarter
like-for-like sales expectations as volumes fell.
Even as volumes rose at Reckitt's health business, which makes
Nurofen pain medication and Strepsils lozenges, they continued to
decline in the hygiene segment. The company's nutrition business was
also up against a tough comparative period from last year, when the
recall of a rival U.S.-based company's infant formula boosted sales
of Reckitt's Enfamil products there.
"Consumer staples quarterly results have been underwhelming, where
overall volumes remain weak whilst prices are going up less than
historically," Waverton Investment Management portfolio manager
Tineke Frikkee said.
One bright spot of the earnings season was Danone, which on Thursday
raised its 2023 sales forecast but kept its guidance for a moderate
improvement in operating margin.
"Any good news we have on inflation, we will re-invest in the
business," finance chief Juergen Esser said.
All of Danone's businesses contributed to growth, with the
transformation of the Essential Dairy and Plant-based products
business in Europe starting to deliver results, giving the company
confidence for the next quarters, the company said.
"Danone is one of the most compelling turnaround stories in staples
and is well positioned and ‘set up’ for 2024," Barclays analyst
Warren Ackerman said.
(Reporting by Richa Naidu; additional reporting by Dominique Vidalon
in Paris; editing by Matt Scuffham and Mark Potter)
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