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UNILEVER FACES $2.3 BILLION IN COST INCREASES, SHIFTS STRATEGY
Unilever, whose 400 consumer brands include Lifebuoy soap and Ben & Jerry’s ice cream, faces a $2.3-billion increase in the cost of its raw materials during the first half of this year, CEO Alan Jope said in a statement last week.
Its cost for crude oil is up 60 percent, palm oil 130 percent, and soybean oil 100 percent.
In response, the company plans to raise product prices in the U.S. and Latin American and cut back on specials and discounts in Europe.
The company will not return to its pre-COVID profit levels until at least late 2023, Jope warned, adding that Unilever will not make any major acquisitions, at least in the short term.
In July, Unilever announced that its 2022 profit margins this year will be about the same as in 2020.
Unilever recently failed in its attempt to buy drugmaker Glaxo Smith-Kline, as we reported in “Trian Buys Into Unilever” (1 Feb 2022).
Jope also is fighting a looming takeover attempt by private equity firm Trian Fund Management and recently trimmed Unilever’s management structure and launched a €3-billion effort to buy its own shares.
In January, the company unveiled a plan to cut 1,500 jobs and spin off its beauty, ice cream, and personal care operations as independent businesses—a move that will cut costs long-term but would incur €1.4 billion in charges now.
Unilever has been able to pass much of its higher costs through to consumers.
However, that strategy may be short-lived: as name-brand products become more expensive, consumers are shifting to generic or low-priced alternatives or foregoing the purchases altogether (see related story in this issue).
Shareholders are becoming restless, Bloomberg reported, with the stock’s price languishing near 2017 levels.
CHILE’S CENTRAL BANK EXPECTED TO RAISE RATES AGAIN
Inflation in Chile rose by 1.2 percent in January from December, bringing the annual pace to 7.7 percent, fractionally more than the U.S.’s 7.5-percent rate, even though Chile’s central bank has raised its key interest rate by five percentage points since July, bringing it to its current 5.5 percent.
The bank is likely to keep tightening until the rate reaches at least 7.5 percent, analysts told the Financial Times.
Chile’s inflation rate has been fueled, in part, by $27 billion in government stimulus spending last year and a program that allowed savers to withdraw pension funds early.
As a result, the country’s GDP ballooned 11.9 percent last year but drove prices higher.
Chile’s economy will expand by 4 percent this year due to high levels of household savings and as much as $15 billion in public investment, finance minister Rodrigo Cerda said to the FT.
Analysts at Oxford Economics see 2022’s growth closer to 2.2 percent.
Markets have shown anxiety over incoming president Gabriel Boric’s pledges to raise taxes, abolish the private pension system, and insert government more into the economy, the FT said.
A committee in the country’s legislature has drafted a new constitution that would nationalize some of the world’s largest copper and lithium mines and reduce water rights now held by farms and mining companies.
However, early statements by the new president and his finance minister, former central bank chief Mario Marcel, indicate “quite a lot more gradualism in policy” in the new administration than campaign promises would indicate, Cerda said.
“Economic growth is fundamental and we need to keep growing fast,” he added.
TRENDPOST: The yearly inflation rate in Chile at 7.7 percent is just two tenths of a percent higher than the United States. Yet, Chile’s central bank has raised its key interest rates by five percentage points since July, bringing it to its current 5.5 percent.
However in the U.S., the Banksters have kept the Fed rate near zero. We note this not only to illustrate the hypocrisy of the U.S. Fed who have kept interest rates at these record lows despite soaring inflation to keep enriching the rich while damaging the average consumer, but that these facts are not reported by any news media.
JAPAN’S CENTRAL BANK HOLDS LOW RATES IN PLACE
Countering the global trend toward higher interest rates, on 10 February Japan’s central bank told investors that it would not allow the yield on 10-year bonds to exceed 0.25 percent, a level that yields have approached in recent days.
The bank announced it would buy an unlimited number of the bonds on Monday this week to keep rates close to zero, a strategy the bank sees as continuing to nurture the country’s still-struggling economic recovery.
TRENDPOST: Again, this is unprecedented. For over a decade, Japan’s central bank has been buying up stocks, bonds and keeping interest rates low as the nation teeters on and off into recession. Clearly, their strategy is a failure, yet they double down on their incompetence… and get away with it as all Bankster Bandits do in a country near you.
GOODYEAR STOCK PRICE PLUNGES 27 PERCENT ON HIGHER COSTS
Goodyear Tire & Rubber’s share price shrank by 27 percent on 11 February after the company announced its raw material costs will grow by as much as $800 million during the first six months of this year, portending retail prices increases.
Energy, labor, and transportation costs also are moving up, the company noted.
“The real challenge in terms of 2022 earnings is going to be addressing inflation in other costs” than raw materials, CEO Richard Kramer said.
The pressures pushing costs higher likely will continue for the next several quarters, he added.
Eight of Goodyear’s nine major competitors either raised prices last year or have announced increases this year, Kramer pointed out.
Goodyear’s share price slid even though sales increased by 38 percent to $5.05 billion in 2021’s final quarter, returning 57 cents a share and beating analysts’ expectations.
COKE AND PEPSI REPORT HIGHER SALES, COSTS
Coca-Cola’s fourth-quarter revenue grew by 9 percent against a 10-percent increase in retail prices, while PepsiCo’s sales for the period gained 12 percent on a 7-percent price boost, the companies reported.
Higher costs of materials, packaging, and transport slashed Coke’s operating profit by 28 percent during the period, while Pepsi’s fell 9 percent.
Both results surpassed analysts’ forecasts.
The fourth quarter was the first in which Coke’s sales topped pre-COVID levels after bars, restaurants, concert halls, and sports arenas continued reopening, CEO James Quincey said in a statement announcing the results.
Supply chains will continue to untangle this year, he added, but will not return to their pre-COVID smooth flows until next year.
Cost pressures may continue into 2023 but recent retail price increases have not hurt sales, Pepsi executives said.
Coke expects 2022 revenue to grow 7 to 8 percent compared to 2021’s, with earnings per share adding 5 or 6 percent. Pepsi foresees 6 percent revenue growth and an 8-percent bump in earnings per share.
Coke also owns Minute Maid juices, Gold Peak tea, and Costa coffee, among its more than 200 brands.
Pepsi, which also owns Doritos and Lays snack chips, Gatorade, Mountain Dew, Gatorade, and Quaker Oats, is not exploring new acquisitions and has the brand numbers and variety to continue its current strategy, CEO Ramon Laguarta said in comments quoted by The Wall Street Journal.
Shares of the two soda companies are trading near their record prices.
TREND FORECAST: As we keep noting, as evidenced by how much soda and snack crap the general public keeps devouring, all the talk about people eating more healthy is nothing more than business media bullshit.
And as we have detailed in scores of Trends Journals, the vast majority of those dying from COVID are suffering from preexisting comorbidities such as obesity and Type 2 diabetes.
Therefore, there are swelling opportunities for new weight-loss and whole health healing programs.
CHIPOTLE MEXICAN GRILL: HIGHER PRICES AHEAD
After boosting menu prices 4 percent in December, the 2,788-store Chipotle Mexican Grill chain expects to raise them 6 percent more this year, CEO Brian Niccol said in an 8 February earnings call reported by The Wall Street Journal.
Menu prices now are about 10 percent higher than a year earlier, Niccol noted.
During last year’s fourth quarter, the company saw costs rise for avocados, beef, freight, and labor.
“It just doesn’t look like inflation is going away any time soon,” he said.
Chipotle’s share price has slipped as much as 16 percent this year as investor concerns mounted over the potential effect of higher prices on sales.
TREND FORECAST: Prices are rising faster than wages across all categories of consumer spending.
As a result, fewer people will have enough money to eat out as often as in the past.
With restaurants already raising wages to lure and keep good workers, their costs will continue to rise as their revenues stagnate or shrink.
Restaurant chains will close unprofitable locations and fewer new eateries will open as inflation continues the hollowing out of the restaurant industry that the COVID War began.
NO LUMBER SLUMBER
The price of lumber, after falling back sharply from a record high in May as we have been reporting, is back on the rise. While some 22 percent lower than their May peak, lumber prices are three times their average pre-COVID War price, according to Random Lengths.
Therefore, according to the National Association of Home Builders, the recent lumber spike added more than $18,600 to the price of a newly built home. The higher lumber costs have also added $7,300 to the cost of the average new multi family home, which means that renters are paying $67 a month more to rent a new apartment.
Other issues inflating lumber prices include ongoing supply chain disruptions, tariffs on Canadian lumber imports and an unusually strong wildfire season in the American West and in British Columbia.
COCOA COST MORE
Cocoa futures keep rising higher as weather in West Africa gets hotter and dryer.
As reported by The Wall Street Journal, most actively traded cocoa futures have risen about 8.4 percent this year—and 8 percent in February alone—to $2,731 a metric ton, which would represent the highest monthly closing level since November 2020.
Therefore, the higher cocoa prices rise the more it costs to buy chocolate. “You see cocoa futures going up and your chocolate bar is going to be more expensive,” Peter Mooses, a trader at RJO Futures, told the WSJ.
Further pushing up inflation, sugar prices are nearing a four-year highs, soybeans are near last year’s highs and Arabica coffee has jumped 10 percent since the start of the year.