NEW YORK: Major global consumer-facing companies like McDonald’s, General Motors and Nestle posted steady first-quarter results built on higher prices, showing how consumers across major economies are still spending despite slowed economic activity.
Shoppers have absorbed price increases for soda, appliances and other goods, bolstering company profits. However, sales volumes declined for many bellwethers in Europe and the United States, raising investor concerns that consumers are starting to balk at increased costs as the economic outlook dims.
“There is uncertainty on how the consumer environment may ultimately play out in 2023, Coca-Cola Chief Executive James Quincey said on a call with investors.
Consumers have more wiggle room in their budgets, said Ben Ayers, senior economist at Nationwide Economics, pointing to increased use of revolving credit, along with the still-resilient job market. However, that pricing power may not last, as US consumer confidence fell to a nine-month low in April, led by a worsening outlook that could temper spending.
Global shipping leader United Parcel Service forecast full-year revenue at the lower end of estimates for 2023.
“Deceleration in US retail sales resulted in lower volume than we anticipated, and we faced ongoing demand weakness in Asia,” UPS CEO Carol Tom said. UPS shares were down 9pc on Tuesday, on target for their biggest one-day drop in more than eight years.
US automaker General Motors Co lifted its full-year profit expectations on Tuesday, saying demand has been stronger than forecast. Even though electric vehicle leader Tesla has been slashing prices to spur demand, GM was able to increase average wholesale prices for North American deliveries by $1,800 per vehicle.
“We feel really good about where we are priced right now and consumers seem to be demanding our products,” Chief Financial Officer Paul Jacobson said during GM’s conference call.
But the pricing gains the automaker enjoyed in the first quarter probably won’t last, according to Jacobson.
So far, US companies are exceeding estimates by more than 8pc in the first quarter, and consumer discretionary names have beaten forecasts by 20pc, according to I/B/E/S data from Refinitiv.
Beverage giant Coca-Cola Co said average selling prices rose by 11pc, while rival PepsiCo Inc said its prices gained 16pc in the first quarter. Pepsi’s CEO said the company is confident about improved growth in China, where first-quarter GDP rebounded after that country loosened longtime coronavirus restrictions.
“We’re seeing in China, an optimism in the customers and that’s driving volume for us across both our food and our beverage business,” Ramon Laguarta, PepsiCo chairman and CEO, said on an analyst call.
Executives said inflation is hitting customers, particularly in Europe. McDonald’s Corp sales rose 12.6pc worldwide for the quarter, beating expectations, but company CFO Ian Borden said “elevated cost inflation continued to put significant pressure on restaurant cash flows, particularly for our European franchisees.”
Published in Dawn, April 26th, 2023
