Companies Take Different Strategies to Navigate High Inflation
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Companies Take Different Strategies to Navigate High Inflation

P&G is ramping up advertising for premium brands; Verizon is raising prices for wireless services
Procter & Gamble Co. is ramping up advertising on premium brands. Verizon Communications Inc. is raising prices on wireless plans, while Whirlpool Corp. has slashed production of appliances.

By THOMAS GRYTA
Mon, Oct 24, 2022 8:41amGrey Clock 3 min

High levels of inflation in the U.S. and shifts in underlying demand are putting the spotlight on the strategies executives are taking to navigate a global economy where costs are rising and consumer appetite for some products has waned.

The first batch of earnings reports from companies for the September quarter show that corporate profit margins are feeling the squeeze of the macroeconomic trends. With a fifth of the S&P 500 index already reporting, data-provider Refinitiv projects quarterly earnings will decline 3.5% from a year ago, excluding the energy sector. Companies are taking different tacks to manage the pressures on their businesses.

“The average consumer [has] become increasingly price-sensitive as the year has progressed,” Hasbro Inc. Chief Executive Chris Cocks said during an earnings call Tuesday. The maker of Nerf and other toys reported third-quarter sales fell 15% because of the timing of product releases and that profits were pinched because it had to increase promotional activity amid a buildup in inventory before the holidays.

P&G, which sells household staples such as Pampers and Tide, is spending on high-profile advertising campaigns and new product features to keep cash-crunched consumers from switching to cheaper brands. In its most recent quarter, higher commodity, materials and freight costs reduced its gross profit margin by 5.5 percentage points, which was fully offset by cost cuts and price increases.

Chief Financial Officer Andre Schulten said the company has enough brands and price levels to give consumers options within its own portfolio. There was growth in mid tier brands during the quarter but also customers spending more on large-size packages to lower the per-use price.

“The strategy to provide pack sizes that stretch from below $10 for some channels and consumers to above $30 or $40 for others seems to be meeting consumers’ needs,” Mr. Schulten said.

Verizon and AT&T Inc. both raised prices on some of their cellphone plans over the summer, a strategy that yielded widely different outcomes. AT&T reported a third-quarter net gain of 708,000 postpaid phone connections—its most valuable customer category—a sign that few of the subscribers affected balked at higher monthly bills.

Verizon’s more widespread rate and fee increases drove down the same types of phone connections in its consumer segment. New business lines barely offset that decline, and the telecom company ended the September quarter with a relatively weak 8,000-phone gain.

Executives at both companies said the higher rates helped boost profits. Matt Ellis, chief financial officer at Verizon, said overall wireless-service revenue grew despite the customer defections, partly because many of its remaining customers chose to upgrade their wireless plans to more expensive packages with perks such as Disney+.

Telecom companies have also said that they benefit from providing an essential service to customers who are mostly able to keep paying, despite signs of trouble in the broader economy. Mr. Ellis said the company “won’t be shy” about raising prices for certain services if it makes sense over the coming months.

“I look at my payment data, and the payment patterns are better than they were pre-Covid,” Mr. Ellis said. “Our base has never looked as strong from a credit standpoint.”

The top U.S. cellphone carriers have avoided raising the price of their most expensive plans, which can cost as much as $90 a line, choosing to target older plans. And many consumers agree to enrol in premium monthly plans in exchange for valuable discounts on new smartphones.

AT&T has sought to regain market share over the past two years by giving new and existing customers deep equipment discounts contingent on customers sticking with the service for two or three years. The company has said its strategy is working but is still less extreme than some of its rivals’ current offers.

Others, such as Whirlpool, are feeling whiplash from a sudden drop in demand for their products at the same time they are confronting high costs for materials, energy and other expenses.

“Demand is down, and cost is up,” Whirlpool CEO Marc Bitzer said during a conference call. “You would expect costs to come down in a recessionary environment. We’re operating in unprecedented times.”

Whirlpool isn’t turning to discounting to move unsold fridges and dishwashers. Instead it slashed production by 35% to shrink inventories. The company cut its profit forecast for 2022 by about half, warning that high costs were likely to persist into next year as appliance demand remains muted.

Fastenal Co., a major distributor of industrial supplies such as nuts and bolts, has been raising prices to offset rapidly rising costs, but the recent quarter showed signs of stability in costs along with some resistance from customers.

“At this stage of the cycle, the marketplace is less receptive to further price increases,” said Fastenal finance chief Holden Lewis on an Oct. 13 conference call. “Product pricing in the marketplace is stable, and there are tenuous signs of product inflation easing.”

—Bob Tita contributed to this article.



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Prepare yourself for the year of the peach

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Pantone has released its 2024 Colour of the Year — and it’s warm and fuzzy.

Peach Fuzz has been named as the colour to sum up the year ahead, chosen to imbue a sense of “kindness and tenderness, communicating a message of caring and sharing, community and collaboration” said vice president of the Pantone Color Institute, Laurie Pressman.

“A warm and cosy shade highlighting our desire for togetherness with others or for enjoying a moment of stillness and the feeling of sanctuary this creates, PANTONE 13-1023 Peach Fuzz presents a fresh approach to a new softness,” she said.

Pantone Colour of the Year is often a reflection of world mood and events

The choice of a soft pastel will come as little surprise to those who follow the Pantone releases, which are often a reflection of world affairs and community mood. Typically, when economies are buoyant and international security is assured, colours tend to the bolder spectrum. Given the ongoing war in Ukraine, the Israeli-Gaza conflict and talk of recession in many countries, the choice of a softer, more reassuring colour is predictable. 

“At a time of turmoil in many aspects of our lives, our need for nurturing, empathy and compassion grows ever stronger as does our imaginings of a more peaceful future,” she said. “We are reminded that a vital part of living a full life is having the good health, stamina, and strength to enjoy it.”

The colour also reflects a desire to turn inward and exercise self care in an increasingly frenetic world.

“As we navigate the present and build toward a new world, we are reevaluating what is important,” she said. “Reframing how we want to live, we are expressing ourselves with greater intentionality and consideration. 

“Recalibrating our priorities to align with our internal values, we are focusing on health and wellbeing, both mental and physical, and cherishing what’s special — the warmth and comfort of spending time with friends and family, or simply taking a moment of time to ourselves.”

Each year since 2000, Pantone has released a colour of the year as a trendsetting tool for marketers and branding agents. It is widely taken up in the fashion and interior design industries, influencing collections across the spectrum. 

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