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Consumer goods companies walk a tightrope as inflation surges By Reuters

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© Reuters. FILE PHOTO – Products displayed in a Levi Strauss New York store on March 19, 2019, U.S. REUTERS/Shannon Stapleton/File Photo

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By Uday Sampath Kumar

(Reuters) – Big brands like Pepsi and Levi Strauss informed investors this week that they have offset inflation by price rises, however rising prices of all commodities from aluminum to cotton indicate tighter times for consumer goods businesses.

Due to disruptions in global supply chains, freight costs have risen across all industries this year. This has impacted profit margins for companies trying to rebound from the COVID-19 pandemic.

PepsiCo Inc. (NASDAQ) helps to offset the loss Levi Strauss & Co (NYSE:) One of the first consumer products companies to announce quarterly earnings has raised the prices for jeans and snacks, resulting in results that exceed all expectations.

Analysts have indicated that while these companies managed to pass on the costs to customers, rising prices will continue to be a problem until at least the beginning of next year. Some industries could face pressure up to the middle 2022.

Government data indicating that inflation is threatening consumer spending has forced companies to balance protecting their margins against the potential for increased demand.

Analysts Credit Suisse (SIX) PepsiCo’s inflationary challenges were described as “stunning” by the SIX.

They stated that margin pressure would be the dominant theme for the remainder of the earnings season. Andrea Teixeira from J.P.Morgan stated that PepsiCo will “continue to feel” the impacts of inflationary pressures on its supply chains.

Ramon Laguarta is the chief executive of PepsiCo, and he remains optimistic despite higher truck driver salaries and packaging material costs.

Laguarta, an analyst, stated, “Across the globe, consumer seems to look at pricing slightly differently than before,” highlighting the company’s strengths and innovation.

Conagra Brands (NYSE) Inc. echoed this sentiment. Levi’s stated that previous price increases had helped increase the jeans manufacturer’s gross margins and would be able to compensate for expected higher cotton prices next season.

But, there are some businesses that feel the pinch more than others.

Constellation Brands (NYSE 🙂 announced Wednesday that price increases and a cost-savings program have been more effective than the higher costs of commodities such as aluminum and diesel.

PepsiCo’s ability to meet the demand and grabbing market share during the pandemic has allowed it to have strong pricing power. Constellation has struggled to maintain supplies, so Markus Hansen (Portfolio Manager at Vontobel Quality Growth), which has stakes in Constellation as well as PepsiCo, stated that Constellation has less capability to increase prices.

PepsiCo was not denying the possibility of price rises in the low single-digits – either 4% or even 5%. Hansen added, “That’s quite powerful,” and said that Constellation would be in the lower single-digit range.

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