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Unilever Gives a Preview of Worsening Inflation Pinch

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By Mitch Phillips Reuters Posted July 25, 2021 7:56 pm Smaller font Descrease article font size -A Larger font Increase article font size A+

Inflation is becoming as much a headache for CEOs of household-staples companies like Unilever as for shoppers. Their ability to pass on price increases hinges on where and what they sell.

The U.K.-based maker of Hellman’s mayonnaise and Ben & Jerry’s ice-cream said Thursday that sales increased at a healthy 5% clip in the three months through June, compared with the same period of 2020. Some products that saw demand slump during lockdowns, such as deodorant, have returned to growth now that social restrictions are being lifted in certain countries.

However, Unilever’s shares fell 5% in early London trading because of new profit guidance. Operating margins are expected to be flat in 2021, down from the slight increase that Chief Executive Officer Alan Jope was targeting just three months ago.

Inflation is the clear culprit. For Unilever and its main European peer Nestlé, costs of goods sold amount to around half of revenue. Bernstein recently estimated that over the next 12 months these two companies face roughly 14% increases in bills for everything from plastic packaging to food commodities. On a call with analysts, Unilever’s finance director said that costs spiked again in the latest quarter. Soybean oil prices, an important ingredient for the company’s salad dressing, jumped 20% compared with the first quarter.

Predicting who has the best ability to pass on these higher prices to consumers isn’t easy, but investors can look for clues in market-share data, as well as companies’ mix of products and countries.

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