Pricing power is what’s allowing many companies — including seven of our Club holdings — to support revenue growth and enhance, or at the very least protect, profitability during an earnings season marked by a still-elevated inflationary environment. When we’re talking about “pricing power,” it’s the ability of companies with strong brands to raise prices without seeing too much impact on demand. In many cases, it’s because consumers, who are also feeling the bite of inflation in their personal budgets, are willing to pay those higher prices because the products are so essential to their everyday lives. And, in times of economic uncertainty, consumers tend to take comfort in their favorite brands. For example, Club holding Procter & Gamble (PG) beat on the top and bottom lines in its fiscal third quarter as price increases enriched profit margins despite a small slip in volumes . Similarly, comparable sales at McDonald’s (MCD) increased by 13% in the first quarter and traffic increased despite increased menu prices. Strategic price hikes at Coca-Cola (KO) resulted in strong Q1 revenue and a muted effect on people’s buying habits. “Some of the best brands in America have been able to push through price increases and have seen favorable demand to where the consumer has responded without too much negativity,” Bradley Thomas, consumer and retail analyst at KeyBanc, said in an interview with CNBC. Cash-strapped Americans are “seeking value,” Thomas added. Remember, value is not always about offering the lowest price, it’s about offering the greatest bang for your buck. The pricing success at P & G, Coca-Cola, or McDonald’s comes down to consumers feeling that they are still getting that value from brands they know and love. Here’s a list of Club holdings with pricing power, starting with a closer look at P & G. PG YTD mountain Procter & Gamble’s stock performance year to date. Procter & Gamble last week delivered quarterly earnings and revenue beats while raising guidance for full-year organic sales growth. The consumer goods powerhouse raised prices across segments, lifting its gross margin by 150 basis points to 48.2% in its fiscal third quarter. P & G reported a 4% increase in fiscal Q3 sales. Organic sales, which exclude the impacts from foreign exchange, acquisitions and divestitures, rose 7%. That increase was driven by a 10% boost from higher pricing. But the Tide, Pampers and Gillette maker’s volume fell 3% as some shoppers traded down to cheaper alternatives. We aren’t concerned since some volume decline is to be expected given the magnitude of the price hikes. Management was able to strike a balance between delivering growth and the best value to customers through its premium products. JNJ YTD mountain Johnson & Johnson’s stock performance year to date. Johnson & Johnson (JNJ)exhibited pricing power during the first quarter in its consumer business, which will be separated later this year and brought public as a standalone company called Kenvue. The unit sales increased 11.4% in Q1, driven by strong pricing actions and healthy demand across its product categories including over-the-counter, skin, health and beauty, and baby care, to name a few. Management during last week’s post-earnings call said its consumer unit, post-separation will be even more competitive. The company’s pharmaceuticals and medtech divisions, which drive a majority of revenue, will remain, and they will keep the Johnson & Johnson name. LIN YTD mountain Linde’s stock performance year to date. Industrial gas giant Linde (LIN) is our way to play decarbonization in an economy focused on clean energy initiatives, and it’s another Club holding that has pricing power. The company produces, processes, and sells different kinds of gases used in a variety of industries including healthcare manufacturing, food, beverage carbonation, steel making, and aerospace. Due to the complexity of the supply chain, Linde has the distinct advantage of contractually passing on additional costs to its customers. This prevents profits from being crunched by higher energy prices and allows Linde to deliver consistent future cash flow and strengthen its earnings power. In its latest earnings, out Thursday, the company said volumes were flat but its price and mix contributed 8% to the top line. Halliburton HAL YTD mountain Halliburton’s stock performance year to date. Halliburton (HAL) on Tuesday announced strong financial performance in the U.S., and international markets in Q1. Total revenue rose 33% year over year while earnings per share more than doubled on an annual basis. The top and bottom-line beats were accompanied by strong operating margin performance and operating cash flow. The oilfield services company has benefitted from an increase in inflation, which has partly resulted from higher energy prices this year. “Pricing continues to trend up for all product lines in all regions,” Halliburton CEO Jeffrey Miller said on the call. Sustained customer demand was also a crucial factor of growth for the quarter. Halliburton has exhibited strong pricing power due to massive demand from global end markets, benefitting from years of under-investment in drilling. AAPL YTD mountain Apple’s stock performance year to date. Apple (AAPL) is another Club holding with pricing strength. In addition to premium prices on its hardware devices, the iPhone maker increased its subscription rate for its streaming service by 40% in November 2022. The monthly price for Apple TV+ rose to $6.99 from its previous $4.99. When Apple TV+ was first rolled out, it only had a few shows and movies, and the price tier was a more affordable option. A few years after its 2019 launch, the platform now has a wider selection of documentaries, films, and TV series in many categories. At that time, the company also increased prices for its Apple Music service to $10.99 from the prior $9.99, in addition to its Apple One bundle service, which hosts these plans among other services to $16.95 from $14.95. When it reported its fiscal first quarter in February, Apple delivered a new record for Services revenue of $20.8 billion despite the difficult macroeconomic backdrop. Apple is out with its latest quarterly next week. MSFT YTD mountain Microsoft’s stock performance year to date. Earlier this year, Microsoft (MSFT) announced changes to global pricing for its cloud services, effective April 1. Microsoft’s cloud offerings, which include Microsoft 365 and Azure, are 9% more expensive in the U.K., and 15% more expensive for customers in the European Union. Microsoft said this price hike is an effort to “align the pricing of our Microsoft Cloud products globally.” Looking ahead, the company will “assess pricing in local currency as part of a regular twice-a-year cadence, taking into consideration currency fluctuations relative to USD [dollar].” While its cloud growth slowed during its fiscal third quarter , rising 27% compared with 31% growth in the prior quarter, the company said Azure took market share, attracting more customers to its AI-powered applications. CAT YTD mountain Caterpillar’s stock performance year to date. During its first-quarter earnings results, out Thursday, Caterpillar (CAT) delivered solid year-over-year revenue growth in each of its product segments, along with meaningful margin expansion. Management said the strength was driven by “favorable price realization and higher sales volume.” Its Construction Industries unit saw sales up 10% and profit margins grew to 26.5% from 17.3%, fueled by stronger pricing and strong demand in both residential and non-residential markets in the U.S. Caterpillar’s latest report shows how its business is benefitting from strategic pricing, which offset costs. (Jim Cramer’s Charitable Trust is long PG, JNJ, LIN, HAL, AAPL, MSFT, CAT. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. 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A grocery cart sits in an aisle at a grocery store in Washington, DC, on February 15, 2023.
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Pricing power is what’s allowing many companies — including seven of our Club holdings — to support revenue growth and enhance, or at the very least protect, profitability during an earnings season marked by a still-elevated inflationary environment.
