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Big companies manage to pass soaring costs on to Reuters’ cash-strapped consumers

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© Reuters. FILE PHOTO: The company’s logo is seen on products on display ahead of the French food group Danone 2019 annual results presentation in Paris, France, February 26, 2020. REUTERS/Christian Hartmann/File Photo

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By John Revilli

ZURICH (Reuters) – Manufacturers of chocolate and coffee bars to lawn mowers and industrial robots have succeeded in passing soaring costs on to consumers, first-quarter earnings showed on Thursday. , alleviating concerns that higher prices might reduce demand for their products.

Some of Europe’s biggest companies reported increased first-quarter sales, with KitKat maker Nestle, country owner Evian Danone and Dulux paint maker Akzo Nobel (OTC:) saying they It is possible to gain profit while increasing the price.

Engineering firm ABB and garden equipment maker Husqvarna also reported strong demand despite both rising prices.

“Pricing authority exists,” said Bernstein analyst Bruno Monteyne.

Outside of Europe, Tesla (NASDAQ:) beat Wall Street expectations on Wednesday, as higher prices helped insulate the electric vehicle maker from supply chain chaos and rising costs. [nL3N2WI3AV]

Major US airlines United Airlines Holdings (NASDAQ: Inc.) and American Airlines (NASDAQ: Group Inc.) report that high fares have not dampened demand for domestic travel. Both airlines are forecasting profitability again.

“The demand environment is very strong,” American Airlines CEO Robert Isom said in a statement.

But while cheering investors, with Nestle, ABB and Akzo Nobel enjoying share price gains, the strategy is raising worries about households’ ability to cope and the outlook for the share. remainder of the year.

Rising interest rates and delayed payroll transactions are pressing on consumers, who are seeing their disposable income shrink and shopping bills rise.

There have been some signs in US retail data that consumers have begun to cut discretionary spending amid high inflation and companies that thrived during the pandemic have lost some of their profits. position.

On Tuesday, Netflix Inc (NASDAQ:) blamed inflation, the war in Ukraine and fierce competition for the loss of subscribers for the first time in more than a decade.

And while Nescafe owner Nestle was among the winners on Thursday, reporting a 7.6% increase in organic sales in the first three months of the year, its chief executive later said. warned that inflation had made their profit margin target more challenging.

Nestle beat the average forecast of 5.0% for currency volatility sales and company-aggregated consensus mergers and acquisitions on the back of a price increase of 5.0%. 2%.

“We have ramped up our pricing responsibly and have seen consumer demand be sustained,” said the Swiss company, whose products include Purina and Nespresso pet food.

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Still the world’s largest food group, the current price hike is unlikely to be the last.

“Cost inflation continues to soar, which will require further pricing and softening actions throughout the year,” Nestle added.

French peer Danone, whose product line includes Activia yoghurt and Evian water, said it was also ready for further price hikes “if needed” after reporting a 7 percent increase in sales. 1% at the end of Wednesday.

The world’s largest yogurt maker benefited from price increases at the start of the year as well as easier comparisons and stronger demand for infant formula in China.

Higher prices could be a sensitive topic in the French domestic market, where the cost of living crisis sets the tone for the presidential battle between incumbent Emmanuel Macron and right-wing challenger Marine Le Pen. .

Rising prices also didn’t hurt demand for Dutch paints and coatings maker Akzo Nobel, which beat quarterly core earnings estimates on Thursday while reporting a 17% increase in prices. with a year earlier.

Chief Executive Officer Thierry Vanlancker said that the group’s “robust pricing initiatives” helped it manage the “unprecedented variable cost inflation that hit our industry during the quarter”.

Outside the consumer sector, factory robots and industrial actuators maker ABB also reported a 21% increase in orders in the first quarter despite rising prices.

Chief executive officer Bjorn Rosengren said an increase in the prices of components and metals as well as increased transportation costs was not likely.

This means ABB will have to keep raising prices to deal with it, he said, though there’s no sign of customers refusing to retrofit their factories with new products.

“They’re still ordering, I guess they’re accepting,” Rosengren told reporters. “We’re not the only ones raising prices, everyone is doing it in the market. That’s the new reality.”

Also on Thursday, Husqvarna, the world’s largest maker of electric garden equipment, said it would raise prices further this month in response to rising energy supplies and costs, and said it There is no sign that retailers are holding back.

“They accept rising prices,” Henric Andersson, CEO of the Swedish group told Reuters after the earnings report.

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