A lesser increase in prices of energy and commodities compared with 2006 will ease the pressure on processors, according to a new report by Standard and Poor's.
The ratings analyst predicts that the already high prices for most commodities, and the easing up of energy prices will mean these factors will have less of an impact on consumer goods companies such as Danone and Cadbury Schweppes. The full impact of price increases secured last year will have a positive effect on the bottom lines of most companies, S&P stated in a report released this week. The analyst predicted that companies will have less opportunity to increase prices for their products.
Price increases were prompted in 2006 mostly by cost inflation. "Lesser cost inflation, in a still intensely competitive market, should provide for more limited price appreciation," the analyst stated. "Mix improvements, fostered by product innovation, however, should improve profitability."
The full-year 2006 results for European consumer goods companies demonstrates their resilience in the face of such pressures. Most companies have reported results that ranged from good to above expectations.
"Many have managed to take advantage of the improved consumer demand in the European market, raised prices, and an improving mix in most mature markets," S&P stated. "This has helped companies to overcome easily the problems of geographic dilution that could have come from the faster growth in less-profitable emerging markets."