Cost inflation and currency challenges: Personal care CEOs brace for ‘significant’ headwinds in H2 2022

Inflationary pressures and currency woes, much of which was linked to the ongoing COVID-19 crisis and war in Ukraine, continued to be a key talking point amongst the beauty and personal care leaders of the world as the majors released their latest financial results this past fortnight. And despite a broad picture of recovery for the global category, with net sales largely up across the board, every company said it was braced for severe headwinds ahead.

The challenges of inflation persist, and the global macroeconomic outlook is uncertain – Alan Jope, Unilever CEO​

Unilever’s CEO Alan Jope painted a picture of resilience during the company’s H1 2022 earnings at the end of July​ but made very clear the road ahead remained difficult.

H1 2022 net sales were up 14.9% for the consumer goods major, with solid growth across its prestige beauty and health & wellbeing divisions – all good progress despite “very challenging”​ external factors.

“Input cost inflation continues to run at record levels (…) And even though a few commodity spot prices have eased in recent weeks, we’re likely to see peak cost inflation sometime in the second half of the year,”​ Jope told analysts on Unilever’s earnings call.

The company would therefore continue pricing actions to offset some of this whilst also working to manage consumer demand elasticity and competitive dynamics, according to company CFO Graeme Pitkethly.

Jope said pricing strategies would continue to be implemented by category and by geography, with “constructive”​ and “fact-based discussions”​ ongoing with retail partners.

“…The challenges of inflation persist, and the global macroeconomic outlook is uncertain, but we remain intensely focused on operational excellence and delivery in 2022 and beyond,”​ the CEO said.

We expect another year of significant headwinds – Jon Moeller, Procter & Gamble CEO​

Procter & Gamble’s CEO Jon Moeller outlined a solid full fiscal year in its FY2022 earnings this month​ but added that the company understood very clearly what challenges lied ahead.

FY 2022 net sales rose 5% and net profit was up 3%, representing “another strong year”​ for the company, despite “severe cost and operational headwinds”​ that were set to continue, according to the CEO.

“What P&G’s people have accomplished together is truly extraordinary. Still, we’re very clear-eyed about the trials ahead. The list of challenges we face heading into our new fiscal year is longer than any I can recall,”​ Moeller told analysts on P&G’s earnings call.

Company CFO Andre Schulten said foreign exchange rates, freight costs, materials, fuel, energy and wage inflation would all prove even more challenging in fiscal 2023 than they had this year.

Moeller said P&G would work to offset some of this via price increases and widespread innovation tailored to each market, category and brand.

“…As we look forward to fiscal 2023, we expect another year of significant headwinds. We remain committed to our integrated strategies of superiority, productivity, constructive disruption and an agile and accountable organisation structure. They remain the right strategies to step forward into the near-term challenges we are facing and continue to deliver balanced growth and value creation,”​ the CEO said.

Foreign exchange has become a bigger headwind – Noel Wallace, Colgate-Palmolive CEO​

Colgate-Palmolive’s CEO Noel Wallace detailed significant acceleration across its business for H1 2022 earnings this month​ but made clear the company would continue to closely track consumer sentiment and behavioural shifts moving forward.

H1 2022 net sales were up 3% worldwide for the company, with particularly strong growth in Latin America at 9%, despite ongoing cost increases across raw materials, packaging and logistics and net profit down worldwide by 16%

“Our solid results this quarter, despite significant headwinds from raw materials, foreign exchange and the broader macro environment, demonstrate that our strategies are working,”​ Wallace said.

Speaking to analysts on Colgate-Palmolive’s earnings call, he said foreign exchange, in particular, had become a “bigger headwind”​ since Q1 2022, with the euro and dollar now at parity and other currencies weaker.

Wallace said the company would continue to bring in price changes to offset headwinds and maintain its focus on premium innovation, brand building and digital capabilities to drive broad-based organic sales growth.

Importantly, Colgate-Palmolive would also continue to closely track consumer sentiment and behaviours, to anticipate any trade down behaviour or softening demand, he said.

“…We will watch the consumer really closely (…) We obviously have a lot of teams on the ground, looking at exactly where the elasticities are, but so far, elasticities are in line with what we expected, or slightly better,”​ the CEO said.