Volume Declines Paint A Cautious Picture

Since the pandemic-era spending spree on discretionary goods ended, companies from Pepsi to UPS have offset transaction volume declines with higher prices. Some industries have had more success than others. However, signs are emerging that the era of aggressive price hikes may be behind us. 🤔

Last week we started looking at consumer goods companies like Procter & Gamble, which raised prices by 10% YoY to offset a 3% drop in demand. Yesterday that trend continued, with Coca-Cola reporting organic revenue growth of 12%, comprised of 11% growth in price/mix and 1% growth in concentrate sales. And today, PepsiCo said prices were up 16% YoY overall, with volumes down 2% across all categories.

International competitor, Nestle, raised prices by 9.8% in its first quarter, with sales volumes falling 0.5%. That follows an 8.2% price increase and a 0.1% rise in volumes last year.

Even restaurant chains are under pressure, though McDonald’s has been able to buck the trend. Its net sales rose 4%, with same-store sales growth of 12.6% across all of its divisions. In the U.S., traffic rose for the third consecutive quarter even as the company raised prices. You can count Chipotle in that category as well. 🍟

While consumers and the media have accused consumer goods firms of raising prices beyond their input costs, they’re still buying their products. How long that will last remains to be seen, but the pricing power of the sector has certainly surprised analysts. 😮

Other industries like shipping haven’t had the same experience.

First-quarter numbers from United Parcel Service (UPS) showed that volumes remain under significant pressure. Here are its segment stats: 📦

  • U.S. domestic segment revenue -0.9% YoY (-5.4% average daily volume & +4.8% increase in revenue per piece)
  • International segment revenue -6.8% YoY (-6.2% average daily volume)
  • Supply chain solutions segment revenue -22.5% YoY (declines in forwarding volume and price)

The company’s CEO, Carol Tome, expects volumes to stay under pressure in the current macroeconomic environment. U.S. retail sales were weaker than expected, and ongoing demand weakness in Asia is dragging down international performance. 🔻

Price and volumes are even impacting slower-moving industries like homebuilders. PulteGroup reported a 33% increase in fourth-quarter income as home sales and prices rose. However, their backlog is beginning to diminish, and new orders (volume) remain slow in an environment of high-interest rates and economic uncertainty. 🏘️

Manufacturing volumes continue to slow, too, with MMM calling out significant weakness in consumer electronics and consumer retail during its most recent quarter. As a result, the company is restructuring with 6,000 global job cuts beyond the 2,500 global manufacturing layoffs announced in January. 🏭

Ultimately the overall impact of this trend comes down to industry and region. Some are faring better than others. But overall, it’s clear that there will be a limit to how far and fast companies can raise prices before it meaningfully impacts volume. And if the global economy continues to soften, as many predict, these companies’ record profits will ultimately take a hit. 

As earnings season continues, investors will watch average selling prices and volumes closely. If the rally in stocks is going to continue, they better hope companies can pump up the volume… 🔊

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