What's going on?
Three giants in the market for consumer goods – Unilever, Nestlé, and Procter & Gamble – all reported quarterly earnings on Thursday. And while they tried to throw a few Easter eggs into the mix, investors weren’t thrilled…
What does this mean?
Even though the trio all reported growth in their quarterly sales compared to the same time last year, shares in all three were either down or flat as investors seemed to spot the elephant in the room: the pricing dilemma.
While consumer goods companies used to have a good deal of clout when it came to setting the prices at which they sold goods to retailers, a number of factors are now preventing them from raising prices as much as they’d like. Without that “pricing power”, the only way they can grow their profits is by selling more stuff (which takes time) or by scaling up through mergers & acquisitions – a potential motive for Procter & Gamble’s acquisition of Merck KGaA’s consumer health branch, also announced on Thursday.
Why should I care?
The bigger picture: Investors tend to like share buybacks.
Unilever said on Thursday that it would buy back stock worth $7.4 billion from investors. Buybacks are typically viewed positively by investors, as they simultaneously demonstrate management’s confidence in the future prospects of the company (because they’re buying shares) and create demand which can help to push the share price up. Furthermore, those investors who don’t sell could end up owning a proportionally greater share of the company’s future profits (since there are then fewer shares on the open market).
For markets: Some investors may have seen past the headlines.
Based on Thursday’s share price activity, investors might be looking past the companies’ attempts to spice up their earnings reports and instead focusing on their challenging pricing dynamics. The pressure definitely seems to be on at Unilever, which successfully fended off a takeover attempt from Kraft Heinz last year and promised its shareholders that it would work to do better.