Please note the paragraph I have underlined for emphasis sake. Even though the story is out of London and is detailing what is transpiring across the Pond with those companies, the exact same thing is occuring over here.
I found it particularly interesting that the US firm, Kraft Foods, is dealing with the surge in commodity prices by shrinking the size of one of their products. That reminds me of what occured years ago - Remember those old 5 pound bags of sugar that went to 4 pound bags? I wonder if they are now going to go to 3.5 pounds or less?
That the Chairman continues to assert that inflation is not a problem is downright ludicrous and strikes me as being disingenous.
I will have more on all of this on my blog at:
DJ Consumer Goods Giants Forced To Act As Commodity Costs Rise
Wed Feb 09 11:27:56 2011 EST
By Simon Zekaria Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Major consumer goods companies are being forced to reassess their business models in the face of soaring commodity costs as they attempt to minimize damage to profit margins and scale back losses. Whether through raising prices, cutting costs, adjusting product size or altering ingredient mix, companies such as Unilever PLC (ULVR.LN), Reckitt Benckiser (RB.LN) and Kraft Foods Inc. (KFT) are all having to take action as rising input costs show no sign of abating. As escalating costs have hit all categories of commodities, no single company is better placed than another, so their differing strategies will be under close scrutiny. "It is similar across the board. Looking at coffee, cocoa, the oil price--everything has gone up significantly and most are back at 2008 levels. On commodity prices, they all tend to drag on each other," Espirito Santo Investment Bank analyst Martin Dolan said Wednesday. Dolan said that lack of clarity on strategic hedging makes it hard to clarify the differing potential impact on individual companies and their ability to respond to market fluctuations. "What we don't have a handle on is whether anyone is hedged better than anyone else. Probably, they are covered in margin terms for the first half, but after it is difficult to assess," he said. Unilever PLC (ULVR.LN), the Anglo-Dutch maker of Ben & Jerry's ice cream, and Reckitt Benckiser (RB.LN), producer of Lysol disinfectants, are taking on inflationary headwinds by innovating and streamlining packaging, ramping up savings plans by paring logistical and purchasing costs, and selectively increasing prices across favorite food, personal care and household product brands. Unilever said last week that it has no plans to reduce the size of its products, following reports that U.S. rival Kraft Foods Inc. (KFT) has chosen to combat rising ingredient costs by cutting the size of its Cadbury Dairy Milk chocolate bar rather than raising prices. Unilever predicted a 400 basis point hit to full-year margin due to escalating commodity costs while U.S. rival Procter & Gamble (PG) said earlier this month its commodities bill will total $1 billion for the year to the end of June, more than double expectations. Analysts warned that Unilever should be mindful of worsening conditions to come. "With Unilever struggling for margin in the face of what we think are only the foothills of input cost inflation, we expect even bigger challenges when it faces the peaks to come," said Martin Deboo of Investec Securities. Reckitt Benckiser's more limited exposure to costs related to food products does not mean it has an easier ride as "its costs (are linked to) the oil price and oil price derivatives," said Espirito Santo's Dolan. Earlier Wednesday, Reckitt Benckiser, the Slough, U.K.-based maker of Lysol disinfectants, Clearasil spot cream and Finish dishwasher powder, as well as French's Yellow Mustard, said its gross margins fell 80 basis points in the fourth quarter on higher promotional spend and as cost inflation took effect. "(Costs) are a concern and a challenge for all companies in the industry. We have key raw materials that are going up. (Costs) will not be eliminated, but we have programs to neutralize the impact," Chief Executive Bart Becht said. These include paring logistics, sourcing and purchasing costs. At 1543 GMT, Unilever was flat at 1826 pence, while Reckitt Beckiser, which underwhelmed investors with its fourth-quarter results, was down 172 pence, or 5%, at 3273 pence, the biggest faller on the FTSE 100. By Simon Zekaria, Dow Jones Newswires; +44 207 842-9410; firstname.lastname@example.org (END) Dow Jones Newswires 02-09-11 1127ET Copyright (c) 2011 Dow Jones & Company, Inc.