Inflation Pushes Consumer-Goods Giant to Accelerate Price Increases

The London-listed consumer-goods giant said it would step up price increases across the world, having already raised prices 1.6% in the second quarter.

“We are going to have to take a little higher levels of price increase,” Chief Financial Officer Graeme Pitkethly told reporters.

Inflation has continued to pick up pace, rising at the fastest pace in 13 years in the U.S. last month as the recovery from the pandemic gained steam and consumer demand drove up prices of everything from autos to clothes and restaurant meals. Other packaged-food manufacturers, including Procter & Gamble Co. and General Mills Inc., have also warned of rising prices this year.

Mr. Pitkethly said Unilever’s large scale and strong inventories would help to mitigate the price rises but that several costs were out of the company’s control and rising more than expected. The price of ingredients such as palm oil, crude oil and soybean oil all rose sharply in the quarter.

Those price increases have already reduced the company’s profitability. Unilever said its underlying operating margin in the first six months of the year fell 1 percentage point to 18.8% from a year earlier.

With no letup expected in cost inflation and expenses related to the Covid-19 pandemic, the company said it expects a slightly lower profit margin for the year.

“We’re very focused on our pricing actions, which we think are landing well but inflation has been even higher than we anticipated,” Mr. Pitkethly said.

He added that the company had already been able to quickly increase prices in places such as Brazil and Argentina, but that doing so in Europe, for example, takes more time because the sales contracts it signs are often for longer periods.

The comments came as Unilever reported a 5.4% rise in first-half underlying sales growth to 25.8 billion euros, equivalent to $30.4 billion, boosted by strong sales of its food and refreshment products. It attributed 4% of that growth to higher sales volumes, with 1.3% coming from higher prices.

Net profit for the first six months of the year fell 5% to €3.12 billion because of a negative impact from currency fluctuations.

Asked by analysts about its ice cream brand Ben & Jerry’s decision to stop selling its products in Jewish settlements located in the Israeli-occupied West Bank and contested East Jerusalem, Unilever Chief Executive Alan Jope said the consumer-goods giant was committed to Israel and that the decision was taken by the brand’s independent board. Unilever bought Ben & Jerry’s in 2000 and pledged at the time to allow the brand’s directors to make decisions about its social mission.

James Edwardes Jones, an analyst at RBC Capital Markets, said the market was disappointed with Unilever lowering its margin guidance but that the company was also likely paying the price of being the first big European consumer goods firm to report.

“It’s a very tough environment,” Mr. Edwardes Jones said. “The reality is that inflation has been going up more or less in a straight line for the past six months and the company is reacting to that.”

Write to Nick Kostov at [email protected]