What’s Going On Here?Unilever reported better-than-expected results on Thursday, proving that it pays to do the right thing by your customers. What Does This Mean?All credit to Unilever, it’s been trying to keep prices down: it’s been substituting hard-to-come-by ingredients – like oils, whose supplies have been badly impacted by the war – with cheaper alternatives. But the company’s philanthropy could only go so far, and it felt obliged to raise its prices by over 8% last quarter to make up for higher energy, workforce, and transport costs. That boosted sales in its personal care, home care, and foods segments, and pushed up overall sales by an expectation-busting 7% last quarter. Unilever also projected full-year revenue growth at the higher end of its previous forecast, which investors appreciated: they sent its shares up on the news. Why Should I Care?The bigger picture: Unilever’s Catch-22.
Thing is, the uptick in Unilever’s revenue came from the price hikes alone, with its customers buying fewer products than at the same time in 2021. And even then, those price hikes only covered about two-thirds of its cost increases, which means the company had to absorb the rest to the detriment of its bottom line. That could leave Unilever in a Catch-22 if prices keep rising: absorb even more costs to keep customers, or hike prices again and risk losing them.
Zooming out: The US economy just shrank.
Unilever’s results suggest customers are so squeezed that they’re ditching must-haves, not just the nice-to-haves that usually get the chop in tight times. And that’s showing up in broader metrics, with surprising data out on Thursday showing that the US economy shrank last quarter for the first time since mid-2020 (tweet this). Higher prices and a spike in Covid cases at the start of the year impacted activity across the board: consumer spending grew by less than expected, businesses stocked up on fewer products, and government spending dried up. | 