Unilever Warns Prices Will Rise Due To Soaring Raw Material Costs | Unilever
Consumer goods giant Unilever has warned that the price of its toiletries, cleaning supplies and dressings will rise in the coming months as it grapples with rising raw material costs on a scale unprecedented in a decade.
The maker of household brands, including Dove shampoo, Domestos bleach and Hellmann’s mayonnaise, said Thursday that the sharp rise in the price of raw materials such as crude oil, palm oil and soybean oil, as well as higher transport and packaging costs, its profitability.
The warning sent the stock down nearly 6% to £ 40.5o, wiping out £ 6.6bn from its market value and making the London blue-chip FTSE 100 index the worst performance.
Unilever CEO Alan Jope said he was “facing very significant cost increases” compared to the first six months of 2020. “Our first instinct is to look for savings in our own business to compensate for these costs, but they are of a magnitude that will force us to continue to accept certain price increases.
“The price of crude oil is now up 60%, palm oil is up 70%, soybean oil is up 80%,” he said, adding that the costs shipping had also increased by 40 to 50%. “These are the big guys we have an eye on and they are operating at levels of inflation that we haven’t seen since 2011.”
Palm oil is used in the manufacture of soaps and shampoos, while the price of oil is the key to its home care brands which include Cif, Domestos and Comfort. Soybean oil is used to make salad dressings, including Hellmann’s mayonnaise, he said. Buyers would likely see a “single-digit price increase” when current price agreements with retailers expire, Jope explained.
In the first six months of 2021, the company’s underlying operating profit margin – a key metric for city analysts – was one percentage point lower than last year, at 18 , 8%. He now expects profit margins to remain stable throughout the year, having previously forecast a slight increase, even as he seeks to raise prices to offset rising costs.
Unilever said underlying sales growth was 5.4%, slightly above expectations, bringing revenue to € 25.8 billion (£ 22 billion), up slightly from to the previous year. Profit before tax was 4.4 billion euros, up from 4.5 billion euros a year ago.
Economists around the world are on the lookout for signs of inflation, amid the disruption caused by the coronavirus pandemic. Other consumer goods companies also said they were affected by rising prices on everything from transportation to raw materials and packaging. However, it’s not always easy for manufacturers to pass price increases on, as Unilever got into an argument with Tesco in 2016 when it tried to increase Marmite’s price.
The declaration of the results came as Unilever faces a row over the decision of one of its brands, Ben & Jerry’s, to halt ice cream sales in the Israel-occupied West Bank and East Jerusalem. The brand retained a great deal of independence to pursue its “cultural and social mission” when it was acquired by Unilever in 2000.
The move has sparked anger among Israeli politicians, including far-right Prime Minister Naftali Bennett, who has promised “grave consequences” for Ben & Jerry’s and Unilever after speaking to Jope.
Jope said the decision to withdraw from the West Bank and East Jerusalem was made by Ben & Jerry’s and its independent board, “adding that he wanted to” underscore Unilever’s continued commitment to Israel ” where it has four factories and 2,000 employees.