Consumer products executives gathered this week at the annual Consumer Analyst Group of New York meeting in Boca Raton, Florida, said that so far, the higher oil price has not had a huge impact on their businesses, which are already getting pinched by soaring ingredient costs and weak consumer spending.
Through Thursday, the price of oil traded on the NYMEX was up about 11 percent from Jan. 27, the day Procter & Gamble Co posted quarterly earnings. The price eased a bit on Friday as Saudi Arabia was reported to have increased output.
"We've had, even since our earnings release, a pretty significant run up in commodities, some of which have an immediate impact on the bottom line, things like diesel," said P&G Chief Financial Officer Jon Moeller.
He said on Thursday that the maker of Tide detergent and Pampers diapers would therefore see its margins grow less than forecast over the next few months.
Church & Dwight Co Inc CEO Jim Craigie also said that slides, which he put together 10 days ago, were more optimistic than he feels now, given the rising oil price and unrest in the Middle East.
Diageo's chief executive Paul Walsh said the world's largest spirits company was more concerned about whether a spike in oil would slow consumer spending, which could then frustrate job creation and cause a further economic slowdown.
"I would hope that the spike in the oil price is temporary, and if it is temporary, I don't think we've got anything to worry about," he told Reuters, noting that oil prices were still much lower than the highs reached a few years ago. "If it is sustained, and continues to march toward $140, then I think there are natural concerns that should be had."
Brent crude closed at $111.36 on Thursday, after rising to a 2-1/2 year high of $119.79 on news that a revolt in Libya had caused large disruptions in the OPEC nation's oil supplies. U.S. crude futures, which are more insulated from international geopolitical risk due to a domestic stockpile, closed at $97.44.
DISCRETIONARY ITEMS IN DANGER
PepsiCo Inc, maker of Frito-Lay snacks and Tropicana orange juice, has said it expected $1.4 billion to $1.6 billion in additional costs this year, an increase of 8 percent to 9.5 percent, due to higher costs for commodities.
Pepsi CFO Hugh Johnston said he did not expect to have to alter that forecast.
"We feel like we've got our arms reasonably well-wrapped around, short of some major event where perhaps in the fourth quarter if we're not covered, there might be a significant change in cost," Johnston said.
"In terms of the consumer, it's a much trickier equation," he said, noting that higher gasoline prices often lead to less spending at gas stations on drinks and snacks.
So far, gas station and convenience store business is "still pretty good," he said. "If gasoline prices hold, I don't anticipate any change in trends. But gasoline prices are an open question, they move pretty rapidly."
The average price for a gallon of gasoline in the United States was $3.18 in the latest Lundberg Survey of some 2,500 gas stations nationwide, up 5 cents from two weeks earlier.
Ken Perkins, president of tracking firm Retail Metrics, said higher gas prices often make people do more shopping at stores that are closer to home, a shift that stands to hurt big-box retailers like Wal-Mart Stores Inc and Target Corp and help smaller discount stores, which include Family Dollar and Dollar Tree, that are in neighborhoods. He also said that when gas creeps up toward $4 per gallon, it impacts consumers' spending more broadly.
"It is affecting the amount of disposable income, because they are putting more money in their tank as opposed to into retailers' cash registers," Perkins said.
The biggest threat could be to companies whose products are not necessities.
"Our target is a middle income consumer," Kohl's Corp CEO Kevin Mansell said in an interview. "Higher fuel prices at the pump -- that impacts them, that's less money in their pocket for things that are more discretionary, which is pretty much everything we sell. For the latest updates PRESS CTR + D or visit Stock Market news Today
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