Daily Management Review

Giants In Consumer Goods May Experience A Halt To Their Margin Recovery As The Benefits Of Price Increases Fade


Giants In Consumer Goods May Experience A Halt To Their Margin Recovery As The Benefits Of Price Increases Fade
Giants in the consumer goods industry may experience a slowdown in their robust profit recovery if cautious consumer spending offsets softening input costs following several quarters of sharp inflation, even as product prices begin to fall.
Customers who had originally splurged and endured the price hikes by the consumer goods industry have tightened their purse strings as a result of poor pay growth and the depletion of savings from the epidemic.
According to experts and investors, Procter & Gamble and Kimberly-Clark could see reduced margins in the upcoming quarters if consumers continue to be cautious with their purchasing.
Kimberly-Clark, P&G, and Colgate all noted last week that the most recent quarter's sales volumes were down.
"Whether it is Procter & Gamble, Kimberly Clark, or anybody else, their consumers seem to be experiencing inflation fatigue and so they are not willing to pay up for name brands when they can trade down," said Brian Jacobsen, chief economist at Annex Wealth Management, which owns shares in P&G and Kimberly-Clark.
According to YipitData, Procter & Gamble's average sales price increased by 7% in January 2023 but only by 3% in December. According to the report, Colgate-Palmolive's average selling price increased by 14% in January but only by 8% in December.
"Contribution of pricing to help offset the record inflation ... has already started receding," Kimberly-Clark CEO Mike Hsu said on a post-earnings call last week.
Based on LSEG data, of the 10 businesses in the S&P 500 Consumer Staples index that have released results thus far, nine have surpassed profit predictions, but over half have fallen short of revenue estimates.
A decrease in revenue may also prompt more businesses to look for cost-cutting measures.
"In 2024, cost containment or reduction will most likely be the main focus. Costs are something you can manage if income is out of your control, according to Jacobsen.
As pricing hikes normalise to low-single-digit levels for the year, S&P Global Ratings projects low- to mid-single-digit revenue growth in the household and personal care market for 2024.
Is there a decline in consumer demand? Absolutely." Aptus Capital Advisors' portfolio manager Dave Wagner stated.