A new report has coined the term "greedflation" to describe the strategy employed by numerous food and consumer companies in the S&P 500. These companies, including Kimberly-Clark Corp., PepsiCo Inc., General Mills Inc., and Tyson Foods Inc., have been raising prices to safeguard their lucrative corporate profits. This practice has allowed them to increase their profit margins during the current period of inflation.
According to the report from Accountable.US, a consumer-advocacy group with liberal leanings, these companies have boasted about their ability to raise prices and generate substantial profits for their shareholders during recent earnings calls. They have even indicated their intention to continue implementing "price actions" despite the Federal Reserve's unprecedented 10 interest rate hikes aimed at curbing inflation.
Liz Zelnick, the director of economic security and corporate power at Accountable.US, highlighted the defiance of these S&P companies, especially in the prominent food industry, in raising consumer prices despite reporting billions in additional net earnings and trillions of dollars in giveaways to wealthy investors. Zelnick emphasized the need for Congress to take serious action against corporate greed, as the Federal Reserve's investment in a policy that has already created economic fissures potentially leading to a recession has not yielded adequate returns.
Accountable.US is not alone in condemning the price increases on essential goods like food. Walmart Inc. has also expressed dissatisfaction with packaged-food companies steadily raising prices for dry grocery and consumable goods. A recent report from research company CFRA suggests that Walmart, with its considerable bargaining power over suppliers, is expected to push back against further price hikes from these packaged-food suppliers. This resistance is likely to impact profit margins, particularly if there is no recovery in volume growth.
Data released in May showed a 0.2% increase in food prices from April, following two months of stagnation. Over the past year, food prices have surged by 6.7%. The food-at-home index has risen by 5.8%, while the index for cereals and bakery products has skyrocketed by 10.7%.
Food prices began rising approximately two years ago due to supply chain issues and higher fuel and commodity costs, which prompted companies to pass on some of these expenses to customers. Despite a decline in shipping and gas costs, companies are determined to further raise prices. Consumer-price-index figures reveal that gasoline decreased by 5.6% in May compared to April, and fuel oil fell by 7.7%.
Kimberly-Clark executives, during their recent earnings call, acknowledged their ability to swiftly implement widespread pricing adjustments, attributing pricing as a significant driver behind their top-line growth. The company exceeded first-quarter earnings expectations and raised its full-year guidance after implementing consecutive 10% price increases, leading to a 340 basis point expansion in margins. Shareholders were rewarded with $425 million during the quarter.
Similarly, PepsiCo's CEO, Ramon Laguarta, stated on the company's recent earnings call that most of their price increases were already behind them. However, he mentioned the possibility of additional pricing in highly inflationary markets such as Argentina, Turkey, and Egypt, where currencies are struggling. PepsiCo's 2022 earnings rose by 16.9% to nearly $9 billion, and the company spent over $7.6 billion on stock buybacks and dividends, with a 1,313% increase in buybacks from 2021.
General Mills boasted about its adeptness in pricing strategies during its recent call, leading the parent company of renowned brands like Cheerios, Nature Valley, Blue Buffalo pet products, and Pillsbury to raise its fiscal 2023 guidance in February. Tyson Foods executives also emphasized their portfolio's significant pricing power, with a year-over-year increase of 7.6%. However, Tyson experienced an unexpected loss in its latest quarter due to weak meat demand, plant closures, and job cuts.
Despite these challenges, Tyson achieved a net income of over $3.2 billion in 2022, up from $3 billion in 2021, and rewarded shareholders with $1.35 billion in buybacks and dividends.
For Accountable.US, this serves as compelling evidence that the Fed's rate-hike strategy has failed to address one of the primary drivers of inflation. They argue that the Federal Open Market Committee should reconsider raising rates again, as it could negatively impact employment and the overall economy.
In terms of market performance, the Consumer Staples Select Sector SPDR exchange-traded fund has declined by 1.6% in 2023, while the SPDR S&P Retail ETF has gained 4.6%. During the same period, the S&P 500 has experienced a 13% increase.