By Pierre Bertrand
European companies and banks reporting financial results Thursday provided a glimpse at the effect inflation is having on the continent as well as on corporate actions to mitigate it. Companies across Europe and the U.K. said cost inflation, sometimes driven by high energy costs, has and is expected to continue to weigh on their performance, triggering many of them to raise prices:
-- Drinks maker Diageo PLC's pretax profit of 3.06 billion pounds ($3.73 billion) was the result of better-than-expected sales driven by higher prices during its first fiscal-half of 2023, which the company said allowed it to offset declines to its gross margin due to cost inflation. The maker of Johnnie Walker Scotch whisky, Guinness stout and Smirnoff vodka said it made targeted price increases across all its regions, which together with a shift toward more premium drinks helped organic net sales grow 9.4%.
-- Fevertree Drinks PLC said it has taken steps to offset what it called significant global inflationary cost pressures. As a result, the London-listed mixer maker said it expects to be able to achieve earnings before interest, tax, depreciation and amortization of around GBP39 million for 2022, a decline from the GBP63.0 million it reported in 2021. "Inflationary cost pressures remain, with further double-digit percentage increases across key input costs including filling fees, ingredients and packaging," the company said, looking toward 2023. It also warned that energy prices are at least three times higher than they were in 2021 and that it estimates that the direct energy component of glass manufacturing means a roughly GBP20 million additional cost in 2023.
-- SGS SA said that inflation affected its adjusted operating income. The metric for 2022 came it at CHF1.02 billion ($1.11 billion), flat for the year compared with 2021. "Operational leverage was temporarily offset by the impact of Covid in China, supply chain disruption and acceleration of inflationary pressure," the Swiss laboratory-service provider said.
-- STMicroelectronics NV said that it faced manufacturing input cost inflation during the fourth quarter of 2022, but said it was able to offset it in its gross profit through a combination of higher prices, an improved product mix and favorable currency effects.
-- Skandinaviska Enskilda Banken AB said operating expenses rose 7% in the fourth quarter compared with the third of 2022, partly due to inflation and continued investments. For 2023, the Swedish bank said it has a cost target of 26.5 billion to 27 billion Swedish kronor ($2.60 billion to $2.65 billion), assuming 2022 foreign-exchange rates. SEB said it gave a range, in contrast to previous point cost projections, to reflect the highly uncertain outlook regarding inflation.
-- Volvo AB said adjusted operating profit for the fourth quarter rose on the year-earlier period, mainly driven by pricing and higher vehicle volumes, which were partly offset by higher material and freight costs as well as other expenses. The Swedish truck maker said it plans to take action to mitigate high costs related to energy, material and supply-chain disruptions. It also said higher input costs, particularly energy prices, are putting its suppliers under financial pressure.
-- Life-sciences company Sartorius AG said that it has had to mathematically adjust its 2025 revenue forecast, increasing it by around 500 million euros ($545.7 million), due to inflation and associated price adjustments. In its 2022 year-end result, the German company said it now anticipates 2025 sales of around EUR5.5 billion, compared with EUR5 billion previously, though it maintained its forecasted earnings before interest, taxes, depreciation and amortization margin at around 34%.
Write to Pierre Bertrand at pierre.bertrand@wsj.com
(END) Dow Jones Newswires
01-26-23 1028ET
