Diapers to Yogurt, Global Firms Face Higher Costs Amid Supply-Chain Woes

By Reuters
Reuters
Reuters
October 20, 2021 Updated: October 20, 2021

Results from companies Procter & Gamble Co and Danone SA as well as phone maker Ericsson on Tuesday show higher costs and supply chain disruptions, signaling more margin pressure for global firms and higher prices for shoppers.

Panic-buying at the start of the pandemic led to mass shortages of everything from toilet paper to packaged foods. Global lockdowns and labor shortages crimped supply chain movement and caused lasting log-jams at ports from China to California.

Many companies have leaned on price increases to offset higher prices for materials needed to make and ship essential necessities like diapers and bottled water. Executives and analysts have said price increases will linger into next year.

Procter & Gamble, which noted its first-quarter operating margins were squeezed, now expects a hit of about $2.3 billion in expenses this fiscal year, compared with a prior forecast of about $1.9 billion.

The company is blaming higher raw material costs as well as diesel and energy prices, and said it does not expect those issues to ease up anytime soon.

Danone, which sells Activa yogurt and Evian bottled water, warned of growing inflationary pressures next year after sticking by its 2021 outlook on Tuesday, pledging its operating margins will be protected by productivity gains and price increases.

“Like just about everyone across the sector and beyond, we see inflationary pressures across the board. What started as increased inflation on material costs evolved into widespread constraints impacting our supply chain in many parts of the world,” said Danone’s finance chief Juergen Esser.

Sweden’s Ericsson told investors on Tuesday global supply chain issues will still be a major hurdle.

“Late in Q3 we experienced some impact on sales from disturbances in the supply chain, and such issues will continue to pose a risk,” Chief Executive Officer Börje Ekholm said in a statement.

The company was not able to deliver certain hardware to its customers due to a chip shortage at suppliers, coupled with logistics problems, it said.

Electric vehicle maker Tesla Inc is due to report results on Wednesday. Investors are closely watching the car maker’s margins. Chief Executive Officer Elon Musk has previously said the company is spending heavily to fly car parts around the world to meet demand, while at the same time working to cut costs at its factory in China by sourcing more local parts.

Some investors want to see how those costs add up.

“I think that there is probably a headwind to margins. They’re paying more for components,” said Gene Munster, managing partner at venture capital firm Loup Ventures, an investor in Tesla. “I think that would be a huge positive if they can raise auto gross margin in this environment.”

By Bernard Orr and Anna Driver

Reuters