10 companies that are raising prices
Get ready to pay more for things like Big Macs and Chevy Malibus. CEOs are admitting as much on company conference calls this earnings season.
Prices of everything from underwear to air fares have been rising in the past few months. And based on recent comments from corporate executives, there's a lot more of that to come.
In conference calls with investors following quarterly earnings announcements this month, large consumer-facing companies -- McDonald's (MCD), Coca-Cola (KO) and Procter & Gamble (PG), to name a few -- have said they plan to pass along the rising costs they face to their customers.
Agricultural products are rising. The cost of beef may rise 7% to 8% this year, pressuring the bottom line of McDonald's. Even the humble french fry is not immune to the power of inflation: A carton of Idaho russet potatoes recently sold for $22.24, up from $9 to $10 from last year. The price of coffee beans could rise as much as 40%, according to Bloomberg News. Kraft Foods (KFT) and JM Smucker (SJM) have already raised prices. Chocolate has soared recently because of instability in the Ivory Coast, the largest cocoa producer. Hershey (HSY) announced a 9.7% increase in wholesale prices in March.
Rising gas adds to pain
Most people worry about rising gas prices because of the added cost of filling up their tanks. But crude oil also goes into making plastic and many everyday products, such as diapers. Kimberly Clark (KMB) recently announced that it was raising prices on its Huggies diapers, pull-up training pants and other products by 3% to 7% because of the costs of petroleum-based raw materials.
So far, U.S. consumers have weathered price hikes fairly well this year -- especially the huge spike in gas. Surprisingly, the most recent Thomson Reuters/University of Michigan Consumer Sentiment Index showed a gain in April versus March. "Consumers are continuing to modestly grow their spending," says Scott Hoyt, the director of consumer economics at Moody's Analytics. "We are seeing spending growth that is not what it was in the fourth quarter but that continues to be healthy."
The big question, especially for investors, is whether shoppers will continue to buy as prices climb even higher. In a recent column, Jim Jubak worried that companies' plans to raise price could result in slowing sales growth. So both investors and shoppers have good reason to keep an eye on companies that are raising prices.
Here are 10 to watch out for:
1. Southwest Airlines (LUV)
Price increase: $10 per round-trip flight
Reason: Rising jet fuel costs
The price of jet fuel has become airlines’ biggest operating expense, rising more than 40% in the past year. Southwest was one of the latest carriers to announce it would be raising its fares as a result of increasing overhead. Gary Kelly, the chairman and CEO, announced that operating expenses, not including the massive rise in fuel costs, were up more than 10% compared with the previous year. Kelly said that the company will be increasing the price of nearly all domestic round-trip flights by $10. Delta Airlines also recently reported it would be raising fares.
2. Kimberly-Clark (KMB)
Price increase: 6% increase in cost of Huggies diapers
Reason: Higher paper/lumber price
Kimberly-Clark, the paper-manufacturing company, announced worse-than-expected first quarter profits. During its earnings conference call, Chairman and CEO Richard Falk stated that the company had taken “a pretty big hit on margins when pulp spiked,” referring to the price of wood pulp, which is used for the paper in most of its products. Kimberly-Clark announced that in order to account for falling revenue, it would be raising the price of several of its products. That includes a 6% increase in its popular line of Huggies diapers.
3. General Motors (GM)
Price increase: $123 on average for each vehicle
Reason: Rising oil and metal prices
In a phone interview last month, a company spokesperson announced that GM would be raising the price of all of its vehicles by an average of $123, adding that the changes would go into effect May 2. GM announced that the increase was due to rising prices in oil and metal, and was not related to the Japan's recent earthquake. GM's announcement comes in the wake of competitor Toyota saying it is raising vehicle sales prices by an average of 1.7%.
4. Hanesbrands (HBI)
Price increase: socks and underwear
Reason: Rising cotton prices
As the price of cotton has continued to skyrocket, The Winston-Salem clothing company has been raising prices on a variety of items since February. In its recent earnings report, Hanes announced a major increase in net income in the first quarter. In the same report, the company announced it would hike its prices on socks and underwear, partially as a result of commodity costs.
5. McDonald’s MCD
Price increase: 1% more on almost all menu items
Reason: Rising commodity prices
In the company's first quarter earnings conference call, McDonald’s CEO Jim Skinner said that the fast food giant would be raising prices on most of its products. Company CFO Peter Benson explained: "We are seeing cost increases on virtually every item in our basket, with beef accounting for about one-third of the additional increase. Reduced herd sizes, increased demand and a weaker U.S. dollar driving up exports are all contributing to the increase in beef costs." In the U.S., the company introduced a 1% price hike across the board in early March, and it plans to implement a similar increase some time in the next few months.
6. Nike (NKE)
Price increase: Across product lines
Reason: Rising oil, cotton and labor costs
In the company’s third quarter earnings report last month, athletic wear maker Nike announced it would be raising prices across its entire product line, citing increased costs. Nike CFO Donald Blair said in the conference call: “As we expected, in Q3, we began to see the impact of rising input costs, such as oil, cotton and labor.” Supply chain management and raising prices would be used to combat the increased costs, the company said.
7. Hershey (HSY)
Price increase: 9.7%
Reason: Higher costs of dairy and sugar
Hershey recently increased prices for the majority of its products. The candy company reported a weighted-average price increase of about 9.7% across its candy and grocery lines. Hershey cited rising raw material costs, as well as fuel costs, for the new prices.
8. Clorox (CLX)
Price increase: Glad trash bags up 10%
Reason: Rising prices of oil and resin
Clorox is raising prices on Glad trash bags by almost 10%, passing along the rising costs of commodities such as resin and oil to consumers. Clorox has raised prices on Glad products for this reason before, most recently in 2008. The company is also raising prices on some of its its salad products, such as Hidden Valley ranch dressing mix.
9. Johnson Controls (JCI)
Price increase: Diehard batteries increasing 5% to 9%
Reason: Rising commodity and handling costs
Johnson Controls, the world's largest manufacturer of lead-acid batteries, increased the prices of its batteries by 5% to 9% last month. The company cites increasing commodity and handling costs as the reasons for the price changes. The added costs are also due in part to updated packaging and transportation safety standards from the U.S. Department of Transportation.
10. Procter & Gamble (PG)
Price increase: Charmin prices up 5%
Reason: Rising costs of energy and wood pulp
Facing rising energy, material and transportation costs, Procter & Gamble has announced that it will raise prices on many of its popular goods. The company's gross margin fell from 51.9% to 50.5% in the most recent quarter compared with last year. Additional costs will now be passed on in part to consumers. P&G will be raising the price on its Charmin paper products by 5%. It will also reportedly be raising prices on Pampers diapers, wipes and Bounty products.
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