Nestle, Budweiser Pandemic Rebound is Clouded by Higher Costs

(Bloomberg) — The world’s largest makers of coffee, beer, whiskey and yogurt have all warned of higher costs, clouding their outlook even as sales recover faster than expected due to the pandemic.

Rising prices for commodities ranging from oil and aluminum to corn and even the agave used to make tequila are pushing profit margins for consumer goods manufacturers, who have so far struggled to pass those costs on to shoppers.

“What we’ve seen this year is kind of a turning point, where after several years of low inflation it suddenly accelerated very strongly,” said Mark Schneider, CEO of Nestle SA.

The Nespresso coffee maker turned expectations for an improvement in profitability on Thursday, instead forecasting a slight decline this year. The pace of cost growth began to pick up in March, Schneider said, adding that the company plans to raise prices for consumers more in the second half.

Budweiser brewer Anheuser-Busch InBev NV, spirits producer Diageo Plc and dairy giant Danone SA also cited rising costs in reporting results, joining Unilever Plc and Reckitt Benckiser Group Plc.

Shares of Nestle fell a staggering 3.4% before offsetting losses, while AB InBev fell a staggering 8.1%.

The world food and beverage giants are stuck in inflation-ridden commodity markets, even as sales rebound from the pandemic. As vaccinations accelerate and countries around the world ease virus restrictions, consumers are returning to offices and dining out at restaurants. This is boosting demand for coffee, beer, mineral water and ice, products that have suffered under lockdowns.

But Danone highlighted the cloud over that recovery and warned of a broad acceleration in inflation in milk, ingredients, packaging and logistics costs. Germany’s Puma SE cited rising costs for freight, cotton and oil, which could lead to higher shoe prices next year.

Diageo Chief Financial Officer Lavanya Chandrashekar said inflationary pressures are twofold. First, the company is struggling with higher prices for corn, aluminum and agave, and second, with the increase in logistics costs since the start of the pandemic.

It offsets those gains with efficiency measures and revenue growth, and it also raised the prices of US brands like Casamigos and Don Julio tequilas and Baileys cream liqueur. Nevertheless, the operating margin in North America has contracted in the past financial year.

Sudden increases in costs are the most difficult for consumer goods companies to deal with, as they prefer to gradually increase prices to avoid deterring buyers from reaching for a competitor’s product.

AB InBev said Thursday it faced higher foreign exchange and commodity costs in key markets such as Mexico, Brazil and Colombia, which weighed on profits even as sales exceeded analyst estimates.

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