RBC Capital Markets takes a cautious view of margin recovery in the second half of the year due to factors including cost inflation, weather, the possibility of war in Ukraine and rising interest rates.
Analysts note the recent widespread margin misses across earnings announcements in the consumer packaged goods sector. Looking ahead, RBC highlights comments from various companies that paint a picture for a challenging 2022: Procter & Gamble Co.’s PG, +1.15% expects a $2.6 billion transportation and commodity headwind for the fiscal year ending in June; Kellogg Co. K, +0.81% expects double-digit inflation for the year; Hershey Co. HSY, +0.
RBC warns that tensions in Ukraine could drive up energy prices, and any sanctions against Russia could disrupt supply chains. Supply chains are also under pressure from China’s “zero-COVID” approach. “With EV adoption likely to increase significantly over the next five to 10 years, we expect structural upward price pressure on these metals.”
“[M]any companies benefited from commodity hedges in 2021, which will be rolling off in 2022. This will result in cost inflation being higher for most companies than just looking at current prices as hedging delayed some of the impacts of the large commodity increases in 2021 into 2022,” RBC said.
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