Strategic Movements July 2022
AT&T and Verizon Parallel Pricing
AT&T Inc. raised prices on older wireless plans by up to $6 for individual lines and $12 for family plans while encouraging subscribers to substitute older plans for newer unlimited data plans. Jeff McElfresh, COO of AT&T, stated: “We looked at a cohort of customers that were on the oldest rate plans that didn’t have access to 5G or some of the best features and benefits.”
Verizon Communications Inc. quickly followed with raising prices $6 or $12 on metered-data plans. Then, taking it one step further, Verizon raised monthly fees on some consumer and business plans by $1.35 and $2.20 per line respectively impacting both legacy subscribers and offerings to new subscribers.
T-Mobile US Inc., as usual, chose not to raise prices for now.
US market share explains a portion of provider actions: AT&T holds 43%; Verizon holds 32%; T-Mobile holds 24% according to Statista. Given the market breakdown, I can understand why T-Mobile is the least aggressive in taking price.
Pricing sophistication might explain a further portion of provider actions. Generally, pricing experts prefer well targeted price increases to address specific cost challenges or market segmentation opportunities over blanket price increases that treat all customers as a single market segment.
Yet it is near impossible to discern executive thinking and analysis at individual companies on pricing based on publicly available information. Verizon may be encouraging AT&T to take even further actions or may be catching-up from past actions. Further research would be necessary to address these questions.
T (AT&T) rose slightly to 21.3 by July 1. 2021 revenue of $169 billion with margins of 12% and a current P/E ratio of 9.
VZ (Verizon) rose slightly to 51.6 by July 1. 2021 revenue of $134 billion with margins of 17% and a current P/E ratio of 10.
TMUS (T-Mobile) was flat near 137 by July 1. 2021 revenue of $80 billion with margins of 4% and a current P/E ratio of 61.
FitzGerald, Drew (2022, June 27). AT&T, Verizon Test Higher-Price Strategy. Wall Street Journal, B3.
Tyson Demonstrates Pricing Acumen Once Again
Tyson Foods Inc., the largest U.S. meat processor, raised prices in Q1 for beef, pork and chicken by 23.8%, 10.8% and 14.4% respectively. Donnie King, CEO of Tyson, connected the price increase with inflation as the cost of goods sold increased 15% overall driven by feed, freight labor, etc. King stated: “We are asking customers to pay for inflation we see throughout the supply chain.” It helped that consumer demand for meat remained strong and Tyson’s competitors faced similar cost inflation.
TSN (Tyson) has fallen from 92 to 84 July 1, likely due to other business and legal issues. 2021 revenue of $47 billion with margins of 6.5% and a P/E ratio of 7.7.
Thomas, Patrick (2022, May 10). Higher Meat Prices Boost Tyson. Wall Street Journal, B1.
Time to Change Expectations at Weber
Weber Inc. reported decreased production due to supply chain challenges and decreased retail sales related to changing consumer habits. These two trends resulted in a $54.5 million Q1 loss compared to a $69 million profit for same quarter last year. To combat challenges, management appropriately raised some prices.
During the height of the Covid pandemic, demand for grills soared as consumers made the most of social distancing guidelines. It was predictable that demand would relax to pre-pandemic conditions as disease pressure subsided. Moreover, costs have soared across many industries. Properly, Weber has lowered forward guidance for revenue and cut its profit outlook.
Survive difficulties to seize opportunities.
WEBR (Weber) has fallen from 10 to 9 in the month following reporting. 2021 revenue of $2 billion with margins of 2.4% and a current P/E ratio of 8.1.
Seal, Dean (2022, May 17). Weber Cuts Profit Outlook Again. Wall Street Journal, B3.
Tom Lock’s British Snack Co. Passes Through Commodity Inflation
Cooking-oil prices are up 300%. Potatoes prices are up 20%. Packaging and cardboard prices are up 20%. Energy price increases impact refrigeration, cooking, and transportation cost. Result: Tom Lock’s British Snack Co. raised the factory to reseller price of a 40-gram bag of potato chips from $1.50 to $1.80, or 20%, a minimally appropriate decision for a brand targeting a premium vegan position and crowd funded as recently as 2019.
Khan, Yusuf (2022, May 23). Supply Woes Upend Potato-Chip Makers. Wall Street Journal, B3.
Campbell’s Profits from Inelastic Demand
For Q1 2022, Campbell Soup Co. reported net sales, which is the product of the net price and quantity sold, increased 7% while quantity sold decreased 3%. This math only works if prices increased by 10%. A good where a 10% price increase only drives a 3% quantity decrease is known as inelastic. Basic pricing math states that any inelastic good would experience both higher profits and revenue if the price is increased. Since stock prices are often driven by factors of revenue and profits, we might expect Mark Clouse, CEO of Campbell’s, to raise prices further.
Challenge: Campbell’s has raised prices three times in the past year and consumers are beginning to shift purchasing patterns in response to inflation. Recommendation: Announce a further price increase sufficient to cover anticipated future cost increases to take effect in the near future and begin negotiations with channel partners from this new position.
CPB (Campbell’s) has risen from 45 to 48 in the month following reporting. 2021 revenue of $8.5 billion with margins of 12% and a current P/E ratio of 15.
Gasparro, Annie and Feuer, Will (2022, June 9). Prices Dent Campbell’s Sales Volume. Wall Street Journal, B6.
Author’s Inquiry: Contrast the pessimistic headline used by The Wall Street Journal with the optimistic headline used by the Wiglaf Journal for the same business story. Are we getting the story wrong, or would we be better served by misdirecting readers with negative headlines?
Tesla Raising Prices, Again
Tesla Inc. increased the price of the Model X dual motor all-wheel drive by $6000, Model S dual motor all-wheel drive by $5000, Model Y long-range by $3000, Model Y performance version by $2000, and the Model 3 long-range by $2000. The price increases were communicated in relation to component, labor, transportation, and raw material cost increases.
Will these price increases stick? Tesla has months-long waiting lists for its vehicles and its competitors are facing similar challenges. Both facts suggest they will.
TSLA (Tesla) has risen from 650 to 680 in the weeks following reporting. 2021 revenue of $54 billion with margins of 10% and a current P/E ratio of 92.
Feuer, Will (2022, June 17). Tesla Raises Prices Amid Surging Costs. Wall Street Journal, B2.