What's going on?
Price hikes helped the world’s largest public food company, Nestlé, report stronger-than-expected first-quarter sales growth on Thursday – and there was also good news from other consumer staples companies.
What does this mean?
Consumer goods companies have long struggled to raise product prices, eating into their revenues and profits. But with wage growth in the UK and US rising by more than inflation – meaning people had a bit more spare cash, on average – it may have been easier for companies to boost prices last quarter. Two thirds of Nestlé’s sales growth last quarter came from higher prices – and Anglo-Dutch rival Unilever’s jacked prices made up a third of its sales growth, which also exceeded forecasts.
Across the Atlantic, PepsiCo’s first-quarter earnings beat expectations on Wednesday, with its improved “mix” – including a spread of new products with higher prices than existing ones – partly to thank.
Why should I care?
For markets: Still part of investors’ staple diet.
Pepsi’s shares bubbled to their highest-ever price on Wednesday, and continued their ascent on Thursday. The fizzy giant’s new CEO poured on the marketing spend and introduced new, healthier products consumers are fond of paying extra for – and Pepsi’s strong results encouraged investors. Shares of Nestlé and Unilever also rose on Thursday as they shook the price-growth monkey off their backs. Buying investors may anticipate higher earnings to come – especially since consumer demand for products like infant formula milk and packaged food tends to be resilient, even in an economic slowdown.
For you personally: Higher prices aren’t all bad.
No one likes to pay more (and have to cut back on Kit Kats). But you may make some cash back in the long run as an investor. PepsiCo represents 1% of the US stock market, Unilever 3% of the British index, and Nestlé’s a major Swiss player. If you’re invested in funds which track major stock markets, those companies’ higher profits should be a boon for your portfolio.