Consumer Goods Giants Struggle Amid Slower Price Hikes

Nestle and Unilever are facing challenges despite slowing price hikes, as cost-conscious customers still lean towards cheaper alternatives. While Unilever maintained its sales forecast and reported profit gains, Nestle lowered its outlook. The industry grapples with increased costs from raw materials to energy post-pandemic and geopolitical events.

Nestle and Unilever may be raising prices more slowly, but that hasn't been enough to win back cost-conscious customers. Both companies delivered disappointing first-half sales growth on Thursday.

Shares of Dove soap maker Unilever rose 5% as it maintained its annual sales forecast and posted a first half profit beat. Kit-Kat maker Nestle, however, dropped 4% after lowering its sales outlook.

After nearly three years of rapid price hikes and a global cost of living crisis, consumer goods makers are trying to lure back shoppers who have traded down to cheaper products.

Nestle CEO Mark Schneider emphasized the value-seeking behavior among consumers, particularly those in the low-income range. The company had to lower its organic sales outlook and slow price hikes earlier than desired as consumers became more cost-sensitive.

Reckitt Benckiser also missed sales growth expectations, with lower volumes offsetting higher prices. The consumer goods industry has been battling soaring costs for raw materials, shipping, and energy, compounded by the pandemic and Russia's invasion of Ukraine.

Nestle's first-half sales increased 2.1%, falling short of the average estimate of 2.5%, while both Nestle and Unilever beat market expectations for first-half sales volumes and profit margins. Unilever's ability to defend and expand its margin in this volatile environment was praised by investment manager Jack Martin from Oberon Investments.

Brand strength remains a concern for Nestle, with Jefferies analyst David Hayes noting that the company's pricing miss could worry investors about future margins. Unilever forecast stronger-than-expected margins for the year but predicted smaller expansion in the second half.

Both companies are increasing investment in their brands. Nestle focuses on precision and scalability in product launches, while Unilever aims to simplify its portfolio to concentrate on top-performing brands.

Unilever's CEO Hein Schumacher plans to spin off the ice cream business, lay off up to 7,500 employees, and focus on key brands to address years of underperformance. Nestle also aims to refine its product strategies and brand focus. Reckitt plans to explore options for its struggling nutrition business and offload homecare brands by the end of 2025.