How Are U.S. Companies Feeling About Inflation?

Inflation may be on a downward path, but that doesn’t mean that companies and consumers aren’t still grappling with higher prices. 

Inflation has been declining since its highs in 2022, but it’s still above the Federal Reserve’s target rate of 2%. Corporate executives have been talking about price pressures on their earnings calls, whether it’s fewer customers wanting to pay elevated prices or higher costs affecting bottom lines. 

Here’s how some corporate executives addressed inflation during the recent spate of earnings calls that covered the final quarter of 2023.

Kraft Heinz

Higher prices led to slower sales for Kraft Heinz Co. (KHC) in its December quarter, as executives at the food and beverage giant said “ongoing consumer pressure” like higher interest rates and cuts in the federal Supplemental Nutrition Assistance Program (SNAP) program were creating headwinds for the company.

“We underestimated the impact of SNAP in Q4,” finance chief Andre Maciel said. “It turned out to be more than 150 basis points stronger than we thought.”

As far as the company’s costs, Maciel said that inflation was driving up prices of commodities like sugar and tomatoes, as well as labor and transportation.

“But the biggest bulk of the inflation is really coming from labor,” Maciel said. “We continue to see a relevant higher than pre-pandemic level increase, as well as in transportation.” 

McDonald’s

During its latest earnings call, fast-food giant McDonald’s (MCD) said higher prices had weakened some segments of its business, particularly with low-income diners. Prices were higher on average by 10%, executives said on the company’s Feb. 5 conference call, cutting into sales from low-income customers.

“There’s been much less pricing that’s been taken more recently on packaged food. So you’re seeing that eating at home is becoming more affordable, that I think is putting some pressure from a IEO (informal eating out) standpoint on that low-income consumer,” CEO Chris Kempczinski said.

As a result, the company is gaining ground with middle- and high-income diners, but is in a battle to bring back low-income customers.

“I think you’re going to see probably some activity there in the U.S. at the local level to make sure we continue to provide good value for that low-income consumer,” he said. 

PepsiCo

When it released fourth-quarter earnings, PepsiCo (PEP) reported about a 1% decline in net sales, the first time the company’s quarterly revenues had fallen since early 2020. Company executives said that shoppers weren’t necessarily ready to pay higher prices for PepsiCo products like Mountain Dew, Doritos, and Gatorade. It’s one reason the company revised its 2024 revenue projections down to 4% growth, lower than its previous guidance of 4% to 6% revenue growth.

“Part of that is a slowdown due to pricing and disposable income situation,” said Ramon L. Laguarta, PepsiCo CEO. “Part of that is also pivoting between in-home consumption and away-from-home consumption that we’re seeing in our business in the U.S.”

Hershey

Another company struggling to grapple with inflation is candy maker Hershey Co. (HSY), which saw its income slip in its fourth-quarter earnings report.

Hershey’s inflation troubles stem from the rising price of cocoa, a key ingredient in chocolate, which executives said limited the candy maker’s earnings growth and could force it into raising prices for Hershey’s Kisses, Reese’s Peanut Butter Cups, Kit Kats, and other candies in the company’s brand portfolio.

“Given where cocoa prices are, we will be using every tool in our toolbox, including pricing, as a way to manage the business,” said Michele Buck, Hershey chair and CEO.

Krispy Kreme

Doughnut maker Krispy Kreme (DNUT) grew its year-over-year revenue by 11% for the fiscal quarter ending in December, but its adjusted earnings per share declined slightly over the same period, with inflation on key ingredients having an impact.

“It’s a bit of a mixed bag within that kind of high single digit, mid- to high-single digit inflation number among our cost structure as we’re forecasting inflation in excess of 20% on things like sugar, where the market remains around 10-year highs, and low-double digit inflation on things like cartons, which is a commodity we can’t hedge,” finance chief Jeremiah Ashukian said. “But we do expect to see some deflation on key commodities like wheat and edible oils.”

Ashukian added the company could expect to see high-single-digit to low-double-digit inflation for labor in 2024 with California’s minimum-wage increase.