Unilever, Nestle woo investors amid a pricing squeeze
Online, discount shopping lead to firms offering cash.
Unilever, Nestle and other consumer giants are wooing investors with cash rewards as they lose the pricing power that’s historically driven sales growth and predators circle the industry.
Unilever, the maker of Hellmann’s mayonnaise and Ben & Jerry’s ice cream, said Thursday that it plans a 6 billion-euro ($7.4 billion) share buyback, while distiller Pernod Ricard will boost its dividend.
In adopting more shareholder-friendly stances, they’re following Nestle, which is buying back as much as $21 billion of its stock.
The moves come as Nestle, Unilever and rival Procter & Gamble find it ever harder to raise prices, with consumers seeking online bargains from Amazon.com and doing more of their shopping at discount grocers. All three of the consumer giants are revamping their portfolios, with Nestle and Unilever snapping up niche makers of healthier foods.
By boosting returns, the companies are trying to keep shareholders loyal as activist investors and potential acquirers loom. Unilever last year fended off an unwanted takeover bid from Kraft Heinz Co., while Dan Loeb’s hedge fund bought a stake in Nestle, and billionaire Nelson Peltz gained a seat on P&G’s board after criticizing the company’s growth strategy.
“Chronically weak pricing” from Unilever and Nestle will “play to the market’s fears,” Jefferies analyst Martin Deboo said in a note.
Unilever was able to squeeze out gains of only 0.1 percent in underlying pricing in the first quarter, down from a 0.7 percent increase in the previous three months. Nestle’s quarterly increase of 0.2 percent was barely better.
Unilever expects pricing pressure to ease somewhat in the second half, Chief Financial Officer Graeme Pitkethly said.
“We’ve still got negative pricing in North America and Europe — you’ve got Amazon, with a lot of promotional intensity in deodorants,” Pitkethly said, referring to the e-commerce giant’s discounted offers.
Mortgage rates broke out of their rut this week, with the 30-year fixed-rate average reaching its highest level in four years.
According to the latest data released Thursday by Freddie Mac, the 30-year fixedrate average climbed to 4.47 percent with an average 0.5 point. (Points are fees paid to a lender equal to 1 percent of the loan amount.) It was 4.42 percent a week ago and 3.97 percent a year ago.
The jump of five basis points — a basis point is 0.01 percentage point — was the largest weekly increase of the year, putting the 30-year fixed rate at a level it hadn’t been at since January 2014.
The 15-year fixed-rate average jumped to 3.94 percent with an average 0.4 point. It was 3.87 percent a week ago and 3.23 percent a year ago. The five-year adjustable-rate average rose to 3.67 percent with an average 0.3 point. It was 3.61 percent a week ago and 3.10 percent a year ago.
On Wednesday, the Federal Reserve released its latest “beige book” — a report on economic conditions in its 12 districts — which showed the U.S. economy expanding at a modest pace. Good economic news tends to be bad for mortgage rates because a strong economy raises fears about inflation. Inflation causes fixed-income investments such as bonds to lose value, and that causes their yields to rise.
The yield on the 10-year Treasury has steadily moved higher over the past week, rising to 2.87 percent Wednesday. Mortgage rates generally track the same path as long-term bond yields. When yields go up, home loan rates tend to go up.
“Geopolitical headlines have temporarily seized markets’ attention — and could do so again this week — but the underlying macroeconomic fundamentals continue to point to a relatively strong U.S. economy and gradually rising rates over the coming months,” said Aaron Terrazas, senior economist at Zillow. “Several speeches by key (Federal Open Market Committee) voters and incoming housing data early next week will likely further buttress that view.”
Bankrate.com, which puts out a weekly mortgage rate trend index, found more than half of the experts it surveyed say rates will continue to rise in the coming week. Michael Becker, branch manager of Sierra Pacific Mortgage, is one who predicts higher rates.
“As earnings season begins, a familiar pattern of the last few years is re-emerging,” Becker said. “It’s one where earnings beat expectations and stocks rally as a result. As often happens when stocks rally, bonds sell off and yields or rates rise. Because of this, I expect rates to rise in the coming week.”
Meanwhile, after a couple of slow weeks, mortgage applications picked up last week, according to the latest data from the Mortgage Bankers Association. The market composite index — total loan application volume — increased 4.9 percent from a week earlier. The refinance index grew 4 percent, while the purchase index rose 6 percent.
The refinance share of mortgage activity accounted for 37.6 percent of all applications.
“After a bit of a slow start to the spring home-buying season, home purchase applications ticked up, as the weather warmed and the Easter holiday passed,” MBA president David Stevens said. “Conventional home purchase mortgages hit their highest level since January 2009, while the refinance share of mortgage activity was its lowest since September 2008.”