CPGs Talk Tariffs, Price Hikes, and Marketing Budgets as Consumer Confidence Drops

Few industries have better insight into the day-to-day changes in consumer attitude and behavior than the makers of toothpaste, toilet paper, and potato chips.

Below are highlights from recent earnings calls of major consumer packaged goods companies.

Tariffs

Procter & Gamble, the maker of Crest toothpaste, Bounty paper towels, and Tide laundry detergent, anticipates tariffs to push its annual costs up by an additional $1 billion to $1.5 billion. CFO Andre Schulten described the amount as “not immaterial.”

Soap and toothpaste manufacturer Colgate-Palmolive, meanwhile, is bracing for an estimated $200 million hit from tariffs this year.

PepsiCo CFO James Caulfield admitted that the eye-watering import duties constituted “news since we gave our initial guidance at the beginning of the year.” But, he told analysts, the maker of Pepsi, Mountain Dew, and Lays had “mitigation plans” in place “based on what we know about tariffs now.”

Kimberly-Clark CEO Michael Hsu acknowledged that “the breadth and degree of tariffs… has changed significantly since maybe where we were at the end of the last quarter.” It’s just a “very volatile environment,” he added.

CFO Nelson Urdaneta, however, sounded an encouraging note by stating the company—maker of pulp-based products, including Kleenex, Huggies, and Scott paper towels—gets most of its raw materials from America: “80% of our total costs… are U.S.-based,” he said. “So only 20% of our U.S. costs are exposed to tariffs.”

Fernando Fernandez, CEO of Unilever, noted that while tariffs will have limited impact on the company due to its local supply chains, other concerns persist. “The wider macroeconomic uncertainty will pose some risk and challenges to consumer confidence,” he said.

Pricing

Given the current financial pressure on businesses from tariffs and other factors, many executives implied price hikes were inevitable.

Nestlé, the company behind Kit Kat and Nespresso, raised prices 2.1% during its latest quarter to help offset the cost of cocoa and coffee. Unilever, the maker of Dove and Hellmann’s, increased prices 1.7%.

During PepsiCo’s earnings call, CEO Ramon Laguarta tread carefully on the question of price increases. The snack and beverage giant is aware that “consumers are feeling more challenged with their disposable income,” he said. Because shoppers are looking mainly for value, “we’re putting more emphasis on… entry price points and making sure that we’re not asking for a large amount of money for participating in our brands,” he said.

Kimberly-Clark appears to be holding the line on price hikes for now. CEO Hsu said he’s seen a consumer “migration” toward “more affordable price package sizes,” adding that “budgets are going to be tight. And so affordability for us is core to our strategy.”

To help mitigate higher costs, P&G is looking to adjust sourcing, improve productivity, and, when necessary, increase prices.

“We will look at pricing with innovation, and we will look at straight pricing,” said P&G’s Schulten. “All of those elements are on the table.”

Consumer sentiment

Amid the uncertainty, which is dampening consumer optimism about the economy, executives expect a slow down in spending.

“Uncertainty creates a pensive and anxious consumer, and when you have uncertainty in terms of macroeconomics and everything surrounding that, consumers tend to hunker down,” said Noel Wallace, CEO of Colgate-Palmolive. “Even in our categories that are non-discretionary, you’ll see consumers destock their pantries and not necessarily buy that extra tube or that extra body wash.”

PepsiCo chief Laguarta said he sees the international market as the company’s “largest growth engine,” though he did note that the average customer in China is “hurting a little bit.” Consumer sentiment in Mexico, he added, is “impacted by what happens in the U.S.,” and many American consumers are increasingly worried about a recession.

“What we’re seeing, I think, is a logical response from the consumer to pause,” said P&G’s Schulten. “And that pause is reflected in retail traffic being down.”

Kimberly-Clark’s Hsu acknowledged that many households are under financial pressure. “Affordability has become paramount more than… it’s been in my dozen-plus years here,” he said. “We understand that burden… middle-income to lower-income households are dealing with.”

Anna Manz, CFO of Nestlé, noted company sales had slowed due to softer consumer demand. At the same time, she added, this decline began prior to any trade wars. “Consumer confidence in many geographies was already fragile even before the increasing macroeconomic and political uncertainties,” she said.

Marketing budgets

An analyst on PepsiCo’s April 24 earnings call asked if it’s time for more aggressive spending on marketing. While CFO Caulfield didn’t mention marketing in his response, he stated the company is focused on “providing value to the consumer,” but “we’re not going to do it in a way that we damage the long-term health and profitability of the business.”

Elsewhere on the call, CEO Laguarta stated, “we feel good about the advertising. We feel good about the portfolio.”

Keurig Dr Pepper’s CEO, Timothy Cofer, told analysts the company will remain “bullish” on the marketing front, especially given the positive results it’s seen with the recent launch of Dr Pepper Blackberry. “If you haven’t seen our advertising and marketing, it’s great,” he said, calling it a “full-funnel marketing activation across all the different digital, social, and linear channels.”

Looking ahead, P&G and Kimberly-Clark plan to continue investing in advertising at current levels, with an openness to adjusting as necessary. Unilever, meanwhile, plans to invest more in brands showing momentum.