Consumers are feeling the pinch from inflation, and that will likely continue for the foreseeable future. That’s because major companies have been raising prices to protect their profit margins — and they are showing no signs of changing course anytime soon.
Companies in a variety of industries have been talking about their need to raise prices, not necessarily in response to higher demand, but in order to push profits — which surged in 2021 — even higher this year.
The cost of oil and many other raw materials are undeniably higher, so some price increases are necessary for businesses to keep reporting strong enough earnings to please Wall Street.
The implication: Corporate America doesn’t seem terribly concerned that consumers are going to suddenly stop spending. So they are going to find out just how high they can lift prices before shoppers cry uncle.
Earnings calls with analysts during the past few months have been filled with statements from executives about how rising prices have helped boost bottom lines.
Increased commodities costs — for oil, copper, iron, wheat, corn and many other essential supplies — have led big businesses to boost prices to lift profits.
Raising prices across the board
Companies realize they can get away with continued price hikes, in part because the job market is so strong and wages are rising.
TJX (TJX) CEO Ernie Herrman told investors during a February earnings call that there have been “price increases across the board.” So far, executives at Marshalls, T.J. Maxx and HomeGoods have said, “the pricing strategy is working.”
Some companies in service-related businesses are raising prices, too. Concert promoter and ticket seller Live Nation (LYV), a firm that is often criticized by consumers for high prices, said that fans of live events should expect ticket costs to climb even further.
Live Nation CEO Michael Rapino said in a recent presentation to analysts that the company is asked about inflation and ticket prices, “all the time.”
But Rapino argued that “this is a business that is underpriced.” He cited the fact that ticket resellers in the secondary market are often able to command “a high premium for those tickets and experiences” — even after Live Nation has raised its own prices.
Norwegian Cruise Line (NCLH) CEO Frank Del Rio said expenses are up, and his company is passing the costs onto customers.
“We didn’t drop prices. And that’s by design because that’s just not what we do,” Del Rio said during the company’s latest earnings call last month.
“Similar to all other industries, we are experiencing upward pressure on costs in certain areas such as food, perishables and other supplies that are impacted by the global supply chain constraints,” Del Rio said, adding that last summer, “I remember calling my brand presidents into a meeting and asking them to raise prices.”
Some companies pushed back against the notion that they are raising prices simply because they can.
Peanut butter and jelly giant Smucker (SJM), which also owns Folgers and sells Dunkin’ branded coffee in stores, defended its price hikes for coffee during its earnings conference call Tuesday.
“We have seen higher costs,” said CEO Mark Smucker in response to questions about strong profits for the coffee division. “We have been very diligent and prudent in adjusting our prices throughout the year for inflation. And we have been very prudent in how we have taken those and are really just following inflation and making sure that our price increases are truly justified from a cost standpoint.”
SPAM owner Hormel Foods (HRL) is also trying to navigate the higher inflationary environment. That means higher prices for its products.
“As we’re sitting here today, you’ve got, obviously, breast meat prices at significantly higher prices. You’ve got corn and soy at very high prices. So there’s just a lot of moving parts and a lot of volatility,” said CEO James Snee during Hormel’s earnings call with analysts Tuesday.
Higher commodity costs are one reason why prices keep going up
Energy drink maker Monster Beverage (MNST) has also lifted prices. Monster chairman and co-CEO Rodney Sacks read a long list on the company’s earnings call of all the things that are costing the company more — costs that it is passing on to consumers.
“The company experienced increased aluminum can costs attributable to higher aluminum commodity pricing as well as the cost of importing aluminum cans,” Sacks said.
He added that Monster also “experienced increased ingredient and other input costs,” including higher shipping, labor, trucking and fuel expenses.
The price of just about everything is going up, including resin, a substance used in plastic. That’s a main reason why Newell Brands (NWL), the owner of Rubbermaid, has been lifting prices as well.
“We expect this to be another year of high inflation,” said Newell Brands chief financial officer Christopher Peterson on the company’s earnings call last month.
Peterson said that all of its business units are “implementing further pricing increases into 2022” after raising prices last year. He added that higher costs for ocean freight and wages will be “major sources of inflation this year.”
Bucking the trend
Still, not all companies are looking to pounce and raise prices.
Top retailer Walmart (WMT), which has a reputation for discounts and price rollbacks, said in its last earnings report that it is committed to keeping prices low for its consumers.
That’s not just corporate altruism, it’s a main selling point to get shoppers in the door.
“We use rollbacks to communicate not only the reality that prices are coming down at some places but the emotion or perception we want customers to have about us being there for them and earning their trust during a period of time like this,” Walmart CEO Doug McMillon said on a conference call.
