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Nestle and Unilever are finding it hard to raise the prices they charge retailers

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First-quarter sales growth at Nestle and Unilever was driven almost entirely by shifting more goods, in a stark illustration of how hard it is for consumer products makers to raise prices in a competitive retail environment.

Multinational makers of everything from soup to soap are under pressure to boost revenues as consumers flock to fresher products and newer brands. The large retailers they sell through face their own pressure to keep prices down, as they battle new competition from drug stores and Amazon.com.

The result has been mounting tension, which recently erupted in a clash between Nestle and European retailers that saw some of the Swiss company’s goods briefly taken off store shelves. That row was itself an echo of a 2016 standoff between Unilever and British supermarket giant Tesco.

On Thursday, results from both manufacturers suggested those tensions remain high. Nestle’s 2.8 percent underlying sales growth only got a 0.2 percent boost from higher prices, and Unilever’s 3.4 percent growth just a 0.1 percent lift.

“We expect chronically weak pricing from both Unilever and Nestle to play to the market’s fears of weak pricing power, fueled by channel shift, in the face of rising commodities (prices),” Jefferies analyst Martin Deboo said.

The pricing pressure was even tougher for U.S. giant Procter & Gamble, which on Thursday reported just a 1 percent rise in underlying quarterly sales growth.

That included a 2 percent hit from lower prices, offset by higher volumes and other factors. The maker of Gillette razors cut some prices last year amid competition from subscription-based rivals such as Dollar Shave Club, owned by Unilever, and Harry’s.

Unilever shares were down 2 percent, while Nestle’s were up 0.3 percent, as investors looked past the pricing issue at the Swiss food giant to the fact its overall sales exceeded expectations after several disappointing quarters.

That beat, and a pick-up in volume, is welcome news for Nestle’s new CEO Mark Schneider, who took the top job at the maker of KitKat chocolate bars and Maggi soups in 2017 with the mission to return it to solid growth after six years of decline.

Schneider said underlying growth would improve during 2018.

Consumer sentiment in Europe, as measured by researchers GfK, declined in March to a reading of 20.6 points from 21.1 points in December.

“The mood of European consumers is proving to be rather less optimistic in the first quarter of 2018 than at the end of last year,” the group said on Thursday. “In France and Austria, in particular, the euphoria appears to have diminished temporarily in the wake of the elections.”

Consumer goods makers and retailers are always in complex negotiations around pricing and promotions to suit their ambitions. If a manufacturer wants to take market share, it might discount, or seek price increases to boost margins.

Russ Mould, investment director at AJ Bell, said trends suggested Unilever and some of its peers had “blinked a little” on pricing due to growing competition, even though they represent powerful, established brands.

“Brands are still a vital part of any company’s pricing power armory but … some companies are stronger in the food chain than others, depending on size, route to market and the availability of alternatives,” Mould said.

Nestle and Unilever are two of the world’s biggest packaged goods companies, with the Swiss giant home to Gerber baby food and Perrier water, and its Anglo-Dutch rival the company behind Dove soap and Ben & Jerry’s ice cream.

This is Unilever’s second quarter of volume-led sales growth, after several quarters fueled by pricing. Finance chief Graeme Pitkethly said the earlier price rises, and corresponding weak volume, were partly due to currency-related inflationary pressures in certain markets that have since abated, giving consumers more confidence to spend on everyday items.

As a result, sales volume in emerging markets, where Unilever does the majority of its sales, was ahead of expectations, according to Barclays analysts.

“The good news is when you have more muted pricing, more consumers buy more of your brands,” Pitkethly said, adding that minimal commodity price inflation had also inhibited the ability to raise prices.

He said the main pricing trouble spots were Brazil and Indonesia, which both saw prices fall due to weak consumer sentiment; India, due to a tax change put through last year; and Britain, where retail competition is fierce.

These four countries make up 25 percent of Unilever’s sales, Pitkethly said. Other countries, such as Turkey and Mexico, saw a good balance, he said.

The overall balance of price and volume would improve in the second half of the year, Pitkethly said.

Both companies confirmed their sales guidance for the year, with Nestle aiming for 2-4 percent underlying sales growth and Unilever looking for 3-5 percent growth. Unilever said growth in the second quarter would be near the lower end of the range.

Nestle also said it was on track to return to mid-single-digit underlying sales growth by 2020.

Nestle highlighted a return to volume growth in the Americas, helped by strong petcare and coffee creamers sales, while growth in Asia benefited from the timing of the Chinese New Year.

Unilever also called out a strong start in North America, helped by innovations such as the new brand Love Beauty and Planet and acquisitions such as Dollar Shave Club.

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Uber wins legal fight to regain London license

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A man holding up a smartphone with the Uber transport app visible on screen, while taxis queue in the background, on June 4, 2019. (Photo by Olly Curtis/Future via Getty Images)

Olly Curtis | Future | Getty Images

Uber won its legal fight to continue operating in London on Monday, as a judge overturned a ban on the ride-hailing app by the city’s transport regulator.

Last year, TfL stripped Uber of its license for a second time — it first declined to renew Uber’s London license in 2017 — citing a “pattern of failures” that had put passengers at risk.

The watchdog said a glitch in Uber’s systems allowed unauthorized drivers to upload their photos to other driver accounts and fraudulently pick up passengers in at least 14,000 journeys.

Uber had tried to allay the regulator’s passenger safety concerns, introducing a new system in April to verify drivers’ identities through a mix of facial recognition and human reviewers.

London is Uber’s largest market by far in Europe. The company has racked up around 3.5 million users and 45,000 drivers in the U.K. capital since launching there in 2012.

It’s the city’s top ride-hailing player but faces heavy competition from several new operators including India’s Ola and Estonia’s Bolt.

This is a breaking news story. Please check back for updates.

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Dow futures up 200 points following a 4-week losing streak

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Spencer Platt | Getty Images News | Getty Images

Stock futures climbed in early morning trading on Monday following a four-week losing streak on Wall Street.

Futures on the Dow Jones Industrial Average rose 213 points. S&P 500 futures and the Nasdaq 100 futures also traded in positive territory as well.

The S&P 500 and the 30-stock Dow were coming off their fourth straight negative week, shedding 0.6% and 1.8%, respectively. It marked the first time since August 2019 that the two benchmarks suffered a four-week losing streak.

The tech-heavy Nasdaq eked out a 1% gain last week, posting its first positive week in four as the technology sector rebounded slightly from the recent deep rout. 

Signs of a worsening pandemic continue to keep investors on edge. New daily coronavirus cases topped 1,000 in New York state on Saturday, marking the first time the state’s new infections have broken the 1,000 threshold since early June.

Major averages are on track to post steep losses for September, a historically weak month for stocks. The Dow and the S&P 500 have fallen 4.4% and 5.8%, respectively, while the Nasdaq has dropped 7.3%. The declines followed a massive comeback from the coronavirus sell-off that saw the S&P 500 climb more than 50% from its March bottom.

“When markets get to the kinds of extremes we saw a month ago, it tends to take a very deep correction before the worst is behind us,” Matthew Maley, chief market strategist at Miller Tabak, said in a note on Sunday. “It also usually sees several ‘waves’ of a decline.” 

Investors continue to monitor the developments on further fiscal stimulus after negotiations between House Democrats and the Trump administration fell apart in early August.

House Speaker Nancy Pelosi said Sunday a last-minute coronavirus aid deal remains on the table as House Democrats try to forge ahead on a smaller aid package costing about $2.4 trillion. The chamber could vote on the bill as soon as next week.

Meanwhile on Saturday, President Donald Trump announced that he will nominate Judge Amy Coney Barrett to fill the vacancy left by the death of Justice Ruth Bader Ginsburg on the Supreme Court.

The move sets up a confirmation fight just weeks before Election Day. Hearings to consider Trump’s nominee are set to begin Oct. 12, Senator Lindsey Graham said late Saturday.

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K-pop sensation BTS’ label prices IPO at top end of range

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South Korean boy band BTS backstage during the 61st Annual GRAMMY Awards at Staples Center on February 10, 2019 in Los Angeles, California.

John Shearer | Getty Images Entertainment | Getty Images

SINGAPORE — Shares of Big Hit Entertainment, the music label behind global K-pop phenomenon BTS, were priced on Monday at the top end of the range ahead of their highly anticipated market debut.

Big Hit Entertainment’s stock price was set at 135,000 South Korean won (approx. $115) per piece, according to a regulatory filing on Monday. That was at the top end of the 105,000-135,000 won per share range which was earlier announced. Big Hit is expected to make its market debut in October.

According to the regulatory filing, Big Hit will also raise 962.55 billion Korean won (approx. $820 million) through the offering. The stock was 1,117 times oversubscribed by institutional investors, the filing showed.

Entertainment stocks in South Korea popped on the back of the IPO pricing announcement by Big Hit. Shares of YG Entertainment were up nearly 10%, JYP Entertainment were higher by 8.36% and SM Entertainment jumped more than 6%.

A recent Reuters report indicated that retail investor interest for Big Hit’s IPO is expected to be strong, with fans of BTS reportedly looking to secure shares of the label.

Reuters also said demand among South Korean retail investors for new share listings has been strong as markets are filled with cash after government stimulus efforts to prop the coronavirus-hit economy.

Earlier in September, South Korean video game publisher Kakao Games saw a blockbuster market debut, and shares surged by the daily permissible limit of 30% on their first trading day.

— CNBC’s Chery Kang contributed to this report.

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