Strong U.S. demand and a tight job market have given companies a chance to raise prices coming into this year, and they’re testing the waters gingerly.
From consumer goods and airlines to railroads, businesses made attempts to recover higher costs including rising pay for workers, or simply lifted prices to try to boost profit margins amid healthy sales, according to comments on quarterly earnings conference calls. So far, they’ve had mixed success.
Concerns about slowing global growth, higher borrowing costs and rising uncertainty show the environment remains competitive, with companies trying to assess how much they can hike prices without turning off customers and losing market share to rivals. That means little change in the picture for nationwide inflation, which is expected to hold around the Federal Reserve’s goal without any worrisome flare-ups.
Here’s what executives in several industries said about pricing power in the past week:
Kimberly-Clark Corp., the maker of products including Kleenex tissue and Huggies diapers, has been encouraged by the results of its price hikes even as it braces for slowing sales at some units.
“Our progress in the back half of 2018 with price realization bodes well for our 2019 plan. Given the overall level of pricing we expect to achieve, we’re planning for some negative volume impacts, particularly in consumer tissue,” Maria Henry, chief financial officer, said on a conference call.
At rival Procter & Gamble Co., price increases contributed to revenue gains but the move hurt volumes in segments such as lower-priced diapers. Executives said P&G is ready to adapt as needed.
“Pricing should remain positive in the back half, but this will increase volume uncertainty and volatility. We face highly capable competitors with strong plans of their own,” Jon Moeller, vice chairman and chief financial officer, said on a call. He also referred to “competitive statements” from Henkel AG and Kimberly-Clark.
Meanwhile, toothpaste and soap maker Colgate-Palmolive Co. said it’s raising prices gradually, with more than two-thirds of the 2019 hikes being either rolled over from 2018 or already accepted as part of the relaunch of some product lines.
“We will indeed realize all of the pricing,” Chief Executive Officer Ian Cook said on a call, adding competitors were also facing headwinds in terms of raw materials and foreign exchange. “Our intention was to convey confidence in our ability to deliver the pricing.”
Southwest Airlines Co. expects improvement in a gauge of pricing power early this year amid strong demand for lucrative business travel and healthy prices for last-minute tickets. Meanwhile, Delta Air Lines Inc. earlier this month warned its ability to raise fares is weakening.
Southwest “implemented a system-wide fare increase in late November which we expect to be a benefit throughout 2019,” President Thomas Nealon said on a call. “Our fleet is at full strength and growing. We now have strong revenue management capabilities that we did not have before and we are better prepared to compete in any environment than we were a year ago.”
American Airlines Group Inc. is banking on making its lowest fare category more widely available, because it has found that offering bare-bones tickets makes travelers willing to pay up for a ticket with more frills.
“We’re just going to go up the fare ladder higher,” Don Casey, senior vice president of revenue management, said on a call.
Union Pacific Corp. expects to keep benefiting from increased carloads, higher prices and lower fuel costs.
“For the full year, as we expected, total dollars generated from our pricing actions well exceeded our rail inflation costs,” CFO Rob Knight said. “We expect to continue to do that again in 2019.”
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