Tag Archives: higher costs

U.S. companies to keep prices high as supply chain headaches persist

NEW YORK (Reuters) – The largest U.S. manufacturers including General Motors, General Electric, 3M and Boeing face logistics headaches and higher costs due to global supply bottlenecks that are likely to persist into next year but agreed the hit to profits can be mitigated by charging higher prices for their goods.

Companies across the globe sounded the alarm on supply issues months ago that have pushed prices higher on raw materials from chemicals to steel.

In earnings reports this week investors got a closer look at how companies are managing.

“It starts with really strong price,” said GM Chief Executive Officer Mary Barra in a call with reporters. “We were able to do very well (with) full-size trucks and full-size SUVs. We just can’t build enough of those vehicles.”

GM is also looking to wring efficiencies from its supply chain and she said the chip shortage is likely to improve in the second half of 2022.

Larry Culp, the chief executive of General Electric Co, a maker of jet engines and wind turbines, told investors keeping up with fits and starts in the global supply chain was akin to playing a carnival game that aims to keep players on their toes.

“I’m not sure we’re yet at a place where we would say that things are stable,” Culp told investors on an earnings call on Tuesday. “It really is akin to playing a whack-a-mole.”

General Electric also expects supply constraints to persist through the rest of the year and in 2022, hurting profit in its healthcare business. Boeing Co also complained of a “severely weakened supply chain.”

The pandemic has crippled many companies’ ability to send and receive the parts and supplies needed to make a wide range of products, creating shortages, reducing inventories and hammering profits.

On Wednesday, Harley-Davidson said it increased surcharge pricing in the United States to offset higher raw material costs. The motorcycle maker expects these costs to remain high and is exploring higher surcharge costs globally.

Harley-Davidson said the inventory shortage is also squeezing its international market share.

McDonald’s Corp also said it had to raise prices in the United States.

Industrial giant 3M Co cut its full-year earnings outlook on Tuesday and said it would increase product prices to combat inflationary and supply chain pressures.

The company, which makes a long list of building and construction products, said it was facing higher costs related to polypropylene, ethylene, resins and labor. It added that the global semiconductor crunch would continue to weigh on its automotive and electronics end-markets.

On Tuesday, Lockheed Martin Corp dramatically lowered its sales expectations for this year, saying the pandemic has hobbled the top U.S. defense contractor’s supply chain. Its shares fell more than 11% on Tuesday.

Lockheed’s chief financial officer said the problem worsened for them over the last two months, as the maker of the F-35 fighter jet lowered its 2021 revenue expectations by 2.5% to $67 billion and said next year’s revenue could fall to $66 billion.

(Reporting by Reuters staff; Writing by Bernard Orr; Editing by Andrea Ricci)

Diapers to yogurt, global firms face higher costs amid supply-chain woes

(Reuters) – 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.”

(Writing by Bernard Orr and Anna Driver; Editing by Nick Zieminski)

U.S. farmers face supply shortages, higher costs after Hurricane Ida

By P.J. Huffstutter and Mark Weinraub

CHICAGO (Reuters) – Troy Walker’s phone will not stop ringing at his Kansas farm cooperative, with growers needing fertilizer for their wheat fields in the coming months.

In Kentucky, corn and soybean farmer Caleb Ragland said shelves at his local farm supplier are often bare of weed killer glyphosate and other crop chemicals. He expects the situation could get worse.

Bayer’s glyphosate manufacturing plant in Louisiana remains shut after Hurricane Ida slammed the Gulf Coast in late August, further complicating logistical and supply chain problems that had already tightened global supplies of fertilizers and chemicals.

“Ida was like a heavyweight boxer going 15 rounds, and threw a hard upper-cut at the farmer,” said Ragland, a ninth generation corn and soybean farmer in Magnolia, Kentucky. “Things were already bad. Ida made it worse.”

Ida disrupted grain and soybean shipments from the Gulf Coast, which accounts for about 60% of U.S. exports, at a time global crop supplies are tight and demand from China is strong.

Now, the storm’s ripple effects are hampering production and movement of some fertilizers and crop chemicals ahead of U.S. harvest. This is straining an agricultural and food supply chain already battered by trade and logistics delays during the pandemic.

Rising input costs threaten the incomes of farmers who had banked on booming profits this year, as crop prices soared to the highest in nearly a decade, after years of stagnating around break-even levels. Ragland and other farmers have been rethinking what they will plant in the spring; crops requiring less fertilizer look more attractive.

“At the current prices for nitrogen, it’s making me take a hard look at my corn acres,” Ragland said. “It makes me think we might grow soybeans on some of those acres.”

Before Hurricane Ida, the U.S. Agriculture Department had estimated that farmers would face a 2.2% increase in all corn input expenses for every acre planted in 2022, according to the most recent data, as chemicals and fertilizers followed higher crop prices and supply chain disruptions.

Global supplies were thin of the raw ingredients needed to make farm herbicides including glufosinate, atrazine and glyphosate, partly due to pandemic-related labor and shipping issues, said Marc-Andre Fortin, director of North American crop protection with Farmers Business Network, an online marketplace for farmers.

Imports of glyphosate containers shipped into the Port of New Orleans were down 71% from the same period a year earlier and herbicide container imports were down 1.2%, according to Panjiva, the supply chain research unit of S&P Global Market Intelligence. Potash imports into New Orleans dropped 14.8%.

Then, Ida hit and shuttered Bayer’s glyphosate plant in Luling, Louisiana. The plant helps provide all the active ingredient for Bayer’s Roundup branded ag herbicides in the United States, the company told Reuters.

Bayer’s plant has been closed since Aug. 28. The company, which hopes to restore power within weeks, said it is also working to repair wind damage and run system tests.

RATIONING SUPPLIES

Global glyphosate supplies were already tight as flooding, COVID-19 outbreaks and congested ports snarled production and exports in China for months, said Allan W. Gray, executive director of the Purdue University Center for Food and Agricultural Business.

As a result, chemical manufacturers are rationing supplies to farmers and others, Gray said.

Fertilizer is problematic, too. Walker and the staff at Kansas farm cooperative MKC have not been able to get price quotes from fertilizer suppliers for early 2022. Suppliers do not know if they will have anything to sell, he said – so Walker has turned away some customers.

Such problems have plagued retailers for months. China, the world’s top exporter of phosphate, temporarily halted urea and diammonium phosphate fertilizer exports this summer to feed domestic demand as energy costs and corn prices rose.

More recently, fertilizer producer CF Industries Holdings Inc halted operations at two United Kingdom manufacturing complexes, citing high costs for natural gas feedstock, a key raw material used in nitrogen fertilizers.

Canada’s largest potash producer Nutrien Ltd is sold out in North America through at least the third quarter, and global stocks for potash are tight for the rest of the year, said Ken Seitz, executive vice president of potash at Nutrien Ltd.

Ida tightened fertilizer supplies further, when CF Industries and Incitec Pivot Ltd shut plants because of the hurricane and declared force majeure for customers.

As the supply chain snarled, prices spiked. Prior to the storm, a New Orleans barge of urea set to ship in September to destinations across the U.S. or Canada traded at $450 a ton, said Josh Linville, director of fertilizer at StoneX Group Inc. After, the price jumped to $552 a ton.

“In the fertilizer world, anything that can go wrong, will go wrong,” Linville said. “It’s death by a thousand cuts.”

Wheat and cotton farmer Keeff Felty, 54, said the situation is spiraling. He is studying soil samples to see where he can cut back on fertilizer next season, and paid a company to haul some in-state after local suppliers could not fill his order.

“The price went up from Monday to Wednesday,” said Felty, “and by that night, they were out.”

(Additional reporting by Rod Nickel in Winnipeg, Manitoba; Editing by Caroline Staufer and David Gregorio)

Campbell Soup lowers annual profit forecast as costs rise

By Nivedita Balu

(Reuters) -Campbell Soup Co on Wednesday slashed its forecast for annual earnings after the company’s quarterly results fell short of estimates, hurt by higher costs related to raw materials and transportation.

The canned soup maker’s shares fell about 6% to $46.30.

Campbell, known for Swanson broth, Prego pasta sauces and Pepperidge Farm cookies, expects higher costs to hurt margins even as it plans price hikes for later this year.

Shipping logjams globally and surging demand on the back of a resurgent U.S. economy have led food manufacturers to sacrifice their profit margin as costs rose for items across the board.

“We expected this to be a challenging quarter … but it was made even tougher by several additional factors,” Campbell Chief Executive Officer Mark Clouse said, adding that he expects price price increases to offset some margin pressures.

Campbell also struggled with production and supply disruptions due to the winter storms in Texas earlier this year.

Price hikes are a “cold comfort” and expect investors to view food companies with a skeptical eye in the next few quarters, J.P. Morgan analyst Ken Goldman said.

Campbell forecast fiscal 2021 adjusted earnings between $2.90 and $2.93 per share, compared with its prior forecast of $3.03 to $3.11 per share. It expects sales to fall at least 3.0%, compared with the minimum 2.5% fall projected earlier.

The company, which saw an uptick in demand during peak pandemic from consumers staying at home, said sales of snacks fell 8% in the third quarter, while sales of its soups and pasta sauces fell 14%.

On an adjusted basis, Campbell earned 57 cents per share, missing estimates of 66 cents, according to IBES data from Refinitiv. Net sales fell about 11% to $1.98 billion, compared with estimates of $2.00 billion.

(Reporting by Nivedita Balu in Bengaluru; Editing by Shounak Dasgupta)

UK factories expect strongest rebound since 1973 after COVID-19

By David Milliken

LONDON (Reuters) -British manufacturers’ hopes for an economic rebound rose to their strongest in 48 years this month as the country began to recover from the slump caused by the COVID-19 pandemic, the Confederation of British Industry said on Thursday.

The CBI said its quarterly survey of manufacturers also pointed to a revival of investment and hiring plans and continued concerns about higher costs.

“Phased reopening has lifted the mood among firms, notably driving orders, employment, and investment plans,” CBI chief economist Rain Newton-Smith said.

“However, rising costs are an increasing concern for many businesses, and seem to be putting upward pressure on prices as firms try to protect their margins.”

The CBI said its quarterly business optimism gauge, based on a survey of 288 manufacturers between March 24 and April 14, jumped to +38, the highest since April 1973, from January’s reading of -22.

Plans to invest in plant and machinery were the strongest since July 1997, with anecdotal evidence from firms that they had brought forward plans to take advantage of a temporary tax break announced by finance minister Rishi Sunak in March’s budget.

“Manufacturers are much more optimistic about the future, now that Brexit is largely in their rear-view mirror and world trade is rebounding,” economist Samuel Tombs at Pantheon Macroeconomics said.

Export order growth was the highest since April 2019.

However, the CBI’s separate monthly survey of manufacturers was somewhat less upbeat, with the orders balance falling to -8 from -5, below forecasts in a Reuters poll for a rise to +2.

The quarterly survey also showed the biggest increase in costs for manufacturers since April 2011.

“Anecdotes from manufacturers point to COVID-related supply disruption such as global container shortages leading to higher costs, with Brexit factors such as higher administration costs playing a compounding role,” the CBI said.

Britain’s economy shrank by almost 10% last year, its biggest annual slump in more than 300 years, and the International Monetary Fund expects it to grow by just over 5% this year and next.

Factories were not directly affected by tougher lockdown rules introduced at the start of the year to control the spread of COVID-19, but many of their customers were.

Restrictions have started to ease following the roll-out of vaccines, with non-essential shops reopening on April 12 and pubs and restaurants resuming outdoor service.

(Reporting by David Milliken; Editing by Andy Bruce and Alex Richardson)