The fate of many companies investment in pandemic changes could hang on the answer. JL
Paul Ziobro and Austen Hufford report in the Wall Street Journal:
Some big companies that thrived at the height of Covid-19 are reporting slower growth, signaling that many consumers are reverting to pre-pandemic behavior. UPS said it shipped fewer packages than it did a year ago and warned of slower growth ahead,. The maker of Lysol soaps said sales of disinfectants had dropped more than a third in the U.S. since early March. Campbell Soup reported U.S. soup sales plummeted 21% in the latest quarter. The slowdowns are an early answer to one of the biggest questions of the pandemic: How long-lasting would the behavioral changes brought on by the virus and lockdowns be?Some big companies that thrived at the height of Covid-19 are reporting slower growth, signaling that many consumers are reverting to pre-pandemic behavior.
United Parcel Service Inc. said it shipped fewer packages than it did a year ago and warned of slower growth ahead, sending shares of the delivery giant down nearly 10%. The maker of Lysol and Dettol soaps said sales of disinfectants had dropped more than a third in the U.S. since early March. Campbell Soup Co. reported last month that U.S. soup sales plummeted 21% in the latest quarter, a sharp reversal from a year earlier when food makers were struggling to keep pace with Americans rushing to fill their pantries.
Meanwhile, 3M Co. is cutting global output of the N95 masks it makes and expects sales of the once-scarce items to tumble as increased vaccination rates reduce the spread of Covid-19.
Sales at many of these companies remain strong, and the threat of the Delta variant could lead to more of the restrictions that fueled a surge in demand for their products. The Centers for Disease Control and Prevention on Tuesday recommended that vaccinated people resume masking in public indoor spaces in areas with high Covid-19 transmission.
Still, the prospect of diminishing growth adds to pressure on these companies as they deal with rising cost inflation and supply-chain woes. Unlike during the height of the pandemic, when runaway growth eased the effects of product shortages and other pandemic-related challenges, these companies are losing their silver linings.
The slowdowns are an early answer to one of the biggest questions of the pandemic: How long-lasting would the behavioral changes brought on by the virus and lockdowns be?
“We are seeing shifts in behavior,” Laxman Narasimhan, CEO of Lysol maker Reckitt Benckiser Group PLC, said of demand for hygiene products. “What we did see in Q2, in the U.S. in particular, was a tail-off that was higher than we thought.
At UPS, average daily shipping volume in the second quarter fell 0.8% globally and 2.9% in the U.S. compared with a year ago, when widespread lockdowns kept shoppers at home and shifted purchases of everything from toilet paper to toothpaste online. It was the first time quarterly shipping volume fell since early 2011.
“Many of our brick-and-mortar enterprise customers reopened their stores and as economies reopened, customers went back to those stores,” UPS Chief Executive Carol Tomé said Tuesday.
The company reported a roughly 15% jump in sales and higher profits, benefiting in part from charging more and being more selective about which customers it does business with and what items it ships.
Still, the outlook for slower growth led to Tuesday’s selloff. UPS shares are nevertheless up more than 13% this year.
3M, the largest domestic producer of N95 masks, said sales of the respirators fell 11% in its second quarter compared with its first quarter as pandemic hospitalizations declined. The St. Paul, Minn.-based company said mask sales could fall by up to $300 million in the second half of the year compared with the same period in 2020.
N95 masks, used during the pandemic by healthcare workers and consumers alike, remained in short supply and were difficult to find for all of last year. Hospitals routinely reused their protective equipment, in many cases giving doctors and nurses just one mask per shift.
3M started increasing production in January 2020 as the virus began spreading in China. By January this year, the company was producing masks at a rate of 2.5 billion a year, four times higher than 2019 levels.
Now it is shifting production efforts into reverse.
“We are seeing the demand really change as Covid evolves,” 3M CEO Mike Roman said. “We are in the early process of starting to ramp down production.”
For some companies whose businesses benefited from the pandemic shifts, the slowdown isn’t their only problem. U.S. companies across sectors are paying more for commodities, transportation and labor as Covid-19 outbreaks along the global supply chain have stemmed the flow of everything from cellphones to sweatpants. Many companies have been increasing their selling prices to offset their rising costs, testing consumers’ appetite to pay more for products including food, cars and shampoo.
The cost pressures pose a threat to the recovery of restaurants, retailers and other hard-hit industries that are now benefiting from easing restrictions and the resumption of normal consumer behavior. For the companies that cashed in on abnormal consumer behavior, the current conditions are a double hit.
Reckitt Benckiser said on top of slowing demand for disinfectants, which Mr. Narasimhan said probably peaked in the U.S. in February, it is contending with rising prices of things like plastics and paper, and higher freight costs. Reckitt said its operating profit margin for the first six months of the year fell by 2.9 percentage points to 21.6%.
“Cost inflation accelerated in the second quarter, and it will take time to offset this headwind,” Mr. Narasimhan said. Reckitt lowered its margin guidance for the full year, making a similar move to consumer goods giant Unilever PLC last week. Also last week, Kimberly-Clark Co. reported results that fell short of expectations due to higher costs and shrinking demand for its Scott toilet paper. All three companies have raised prices of some products to offset higher costs.
Shares of Reckitt dropped as much as 9% in London.
0 comments:
Post a Comment