Unilever demonstrates an impressive degree of pricing muscle

theguardian.com:

An upgrade to revenue guidance at Unilever? Is that meant to happen in the midst of an inflationary shock and a squeeze on household budgets? Well, yes, it is – as long as shoppers are willing to pay more for brands such as Domestos bleach, Dove soap, Hellmann’s mayonnaise and Wall’s ice-cream.

And, by and large, they coughed up. Unilever increased its prices by 9.8% in the first half of 2021, and by an eye-catching 11.2% in the second quarter, but the hit to the volume of goods sold was relatively modest at 1.6%. From Unilever’s point of view, that trade-off is tolerable, especially as a chunk of the volume decline was accounted for by locked-down China.

Consumers may not cheer Unilever’s ability to pass on a significant portion (but not all) of higher commodity costs, but shareholders will be reassured by this demonstration of pricing muscle. The City had been half-braced for a serious whack to profit margins but, in the event, Unilever expects to limit the damage to a fall at the operating level this year from 18.4% to 16%. Again, it’ll take that. Poor old supermarkets, rubbing along at 3%-ish, can only look on in envy.

An open question is how far Unilever and its peers will be able to push prices if shocks in the input department keep coming. As things stand today, the company is looking at €4.6bn (£3.9bn) of cost inflation this year, which is a big number even when annual revenues are €52bn. “Uncertain and volatile” – the description of the cost outlook and global economic climate – should be taken at face value.

Zoom out, though, and Unilever chief executive Alan Jope has gone some way to repairing the damage done by January’s chaotic and quickly abandoned tilt at buying GlaxoSmithKline’s consumer healthcare division.