The commodities crunch is corporate America's dirty little secret. Even as consumers open their wallets once again and sales volume improves, inflationary pressure is creeping in. It's hitting companies small and large. And even giant corporations with plenty of heft to negotiate the best possible rates from suppliers are feeling the pinch. Procter & Gamble's (PG) chief financial officer, Jon Moeller, told us on Squawk Box that the consumer-products giant saw a 160-basis-point impact from higher input costs late last year. For now, P&G has offset that rise with its productivity and cost-saving programs.
That can't continue indefinitely, of course. Commodities prices continue to skyrocket -- last year crude-oil prices were up 17.3%, sugar climbed 25.5%, and wheat rose 49.3% -- and eventually will start seriously chomping into corporate profits. (Not that investors have noticed: Thomson Reuters has analysts forecasting a 13.4% climb in corporate profits in 2011.) "Either the revenue picture will start increasing more rapidly over the next few quarters, and that will offset higher costs, or profits will get hit," says Ashwani Kaul, head of his own investment advisory firm. "Something has to give."
Some companies are taking matters into their own hands and acting aggressively to push higher costs on to consumers. Cooper Tire & Rubber (CTB) just jacked up its prices for the second time in six months, boosting them 6.5% in November. The company says it expects its raw-materials costs to climb another 2% to 4% in the fourth quarter. http://finance.fortune.cnn.com/tag/becky-quick/
Excerpt from Fortune Magazine Article by Becky Quick January 21, 2010
