Inside a tub of Ben & Jerry's, Unilever's costs surge

By Richa Naidu

LONDON (Reuters) - Despite some signs inflationary pressures are easing, Unilever warned on Thursday of big increases in the prices of dairy, soybean oil, cocoa and sugar in the first half of this year - potentially bad news for fans of its Ben & Jerry's Half Baked ice cream.

Unilever, which is passing on about three-quarters of its expenses to consumers, said its profit margins had fallen more than two percentage points as it battles cost inflation that started with the COVID pandemic and worsened due to Russia's invasion of Ukraine and extreme weather.

"It's principally around the costs of labour, logistics and energy and what our suppliers see in their own production bases," finance chief Graeme Pitkethly said.

In the first half of this year, dairy costs will be up 22% on the same time last year - "and that's also the case for things like cocoa, which we think will be up about 15% and sugar prices we think will be about 32% up; soybean oil, which is very important for our dressings business or Hellmann's, up about 18%," Pitkethly added.

The worst drought in six decades in Argentina has taken a steep toll on soy farming, while Unilever, which makes ice creams such as Talenti and Cornettos, buys high-end cream from the United States for some of its products.

The company and its rivals in the past two weeks have reported another quarter of sharp price increases to compensate for the higher costs, with both Nestle and P&G reporting roughly 10% hikes. On Thursday, Unilever said it had raised prices by 10.7% in the first quarter.

"People are looking towards the second half of this year for some relief in costs - we'll see if that actually plays out," Richard Saldanha, a fund manager at Unilever and Nestle investor Aviva, said.

"Clearly these companies are still displaying a pretty decent ability to push pricing ... Unilever is able to manage what is still a very elevated cost environment."

(Reporting by Richa Naidu; Editing by Mark Potter)