Inside a tub of Ben & Jerry’s, Unilever’s costs surge

On Thursday, Unilever warned of substantial price hikes in dairy, soybean oil, chocolate, and sugar in the first half of this year, which might hurt Ben & Jerry’s Half Baked ice cream sales.

Unilever (ULVR.L), which passes on approximately three-quarters of its expenses to consumers, said its profit margins had declined more than two percentage points owing to cost inflation caused by the COVID-19 epidemic, Russia’s invasion of Ukraine, and extreme weather.

“It’s principally around the costs of labour, logistics, energy and what our suppliers see in their own production bases,” said finance head Graeme Pitkethly.

“And that’s also the case for things like cocoa, which we think will be up about 15% and sugar prices we think will be about 32% up; soybean oil, which is very important for our dressings business or Hellmann’s, up about 18%,” Pitkethly said. Dairy costs will rise 22% in the first half of this year.

The greatest drought in six decades in Argentina has devastated soy production, while Unilever, which makes Talenti and Cornettos ice creams, buys high-end cream from the US.

Nestle and P&G reported 10% price increases in the past two weeks to offset increasing costs. Unilever announced a 10.7% first-quarter pricing increase on Thursday.

“People are looking towards the second half of this year for some relief in costs – we’ll see if that actually plays out,” Aviva fund manager Richard Saldanha said.

“Clearly these companies are still displaying a pretty decent ability to push pricing…Unilever is able to manage what is still a very elevated cost environment.”