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‘This is a year of inflation’: Why your food prices are going to keep increasing

July 13, 2021, 6:33 PM UTC

Foodmakers PepsiCo and Conagra are the latest companies to confirm that inflation has spiked.

Earlier on Tuesday, both companies reported strong quarterly results, tempered by concerns about rising input and transportation costs that could pressure profits for a while longer.

Conagra—whose brands include Birds Eye frozen vegetables, Duncan Hines cake mix, and Slim Jim meat sticks—is particularly vulnerable and said inflation has picked up so much speed that it was unable to raise its own prices enough to protect its profit margins from falling. Conagra said it was taking “aggressive” action to contain inflation, hinting at higher consumer prices and cost cuts.

As for PepsiCo, whose revenue rose 20.5% in its most recent quarter—helped by a doubling of sales of beverages to restaurants—it struck a more sanguine note about inflation and said it expects cost increases to remain a challenge for some time.

Conagra shares were down almost 5% in afternoon trading, while PepsiCo was up nearly 3%.

The two companies’ comments came on the same morning the Labor Department said June’s consumer price index increased 5.4% from a year earlier, its highest 12-month rate since August 2008. Many companies are passing on the higher costs as much as they can to customers, but some are hitting limits in their ability to do so.

Speaking to analysts on Tuesday, Conagra finance chief David Marberger flagged sustained increases in the cost of edible fats and oils, proteins, packaging, and transportation as the culprits behind the inflation buffeting the company. The company expects inflation for its cost of goods sold to hit 9% this year, reflecting how much more volatile inflation can be for foodmakers than for others.

Conagra now expects adjusted operating margins to be about 16% for its fiscal year ending May 2022, compared with the 18% to 19% it expected earlier.

At PepsiCo, executives said inflation will be a factor for a while, but one that is under control and manageable thanks to higher productivity. “We’re seeing inflation in our business across many of our raw ingredients and some of our inputs,” PepsiCo CFO Hugh Johnston said on a separate conference call with analysts.

General Mills and Unilever are among the many other companies to recently have said inflation was hitting their business. And that is something most consumer-facing companies will have to get used to for at least the medium term.

“This is a year of inflation,” as Conagra CEO Sean Connolly put it.

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