Finance Chiefs Work to Navigate Higher Costs, Transportation Woes
Finance chiefs are making do with less as they work to reduce the impact of higher costs and supply disruptions on their businesses.
Companies across a range of industries are facing inflationary pressures caused by factors including higher commodity prices, supply chain hiccups and high demand for shipping capacity. Many of them are responding by raising prices, but often that isn’t enough to offset the impact of cost pressures and transportation challenges.
Because of that, finance executives are widening the lens to target additional savings, for example by reducing the number of products or services they sell.
E.l.f. Beauty Inc., the Oakland, Calif.-based cosmetics company, this year will be offering a smaller assortment of holiday products than in previous years, Chief Financial Officer Mandy Fields said Thursday. These products, which often come with special packaging, take up as much as four times the shipping-container space of the regular product assortment, Ms. Fields said. The idea is to make sure that E.l.f. gives priority to its core offerings and makes best use of its container capacity, Ms. Fields said.
E.l.f., which sources its products from China, is relying on ocean freight, but has struggled to find containers, similar to many other companies, Ms. Fields said. Businesses’ efforts to restock as the economy rebounded, and a series of shipping disruptions, have left many thousands of containers stranded at sea, in ports or in inland freight hubs, pushing up costs.
E.l.f. in the past quarter had to use airfreight for the first time since Ms. Fields’s tenure as CFO began in April 2019, she said. The company’s transportation costs were significantly higher in the quarter ended June 30 than during the prior-year period, Ms. Fields said. She declined to provide specifics.
Toy maker Mattel Inc. also is facing challenges because of higher logistics and other costs, Chief Financial Officer Anthony DiSilvestro said this month. “During 2021, we have seen an escalation of cost inflation,” Mr. DiSilvestro said, pointing to higher expenses for resins and ocean freight.
The company, which operates its own plants but also relies on external manufacturers, is benefiting from a recent cost savings and efficiency program which helped reduce the number of different items it sells, or stock-keeping units, by about 35%, according to Mr. DiSilvestro. “If you have a third less SKUs to think about, it does reduce the complexity and enables us to be more efficient,” he said, adding that Mattel is watching its input costs and margins.
Chocolate maker Hershey Co. is reviewing its product offering and its packaging on a regular basis, CFO Steve Voskuil said earlier this month. Changing the packaging of a product can help the company raise prices, Mr. Voskuil said. Hershey is also taking a close look at its contracts with vendors and its manufacturing plants in search of potential improvements, he said.
McCormick & Co., the spice and flavor company, is taking similar steps by working to reduce the weight of its packaging, finance chief Mike Smith said last month. “Inflation is a concern” for the industry, Mr. Smith said, adding that McCormick expects overall costs to increase by a percentage in the mid-single digits because of higher costs for raw materials, packaging materials and transportation.
Mr. Smith said McCormick also expects to generate $110 million in other efficiency savings this year.
E.l.f., which has raised prices, has noted improvements around the availability of shipping containers in recent weeks, Ms. Fields said. “Capacity is opening up, but the cost is still pretty high,” she said. The company expects that elevated costs for transport will continue to affect its profit margin, according to Ms. Fields.
E.l.f.’s gross margin declined by about 3.4 percentage points to 63.8% in the past quarter compared with the prior-year period, in part driven by higher transportation costs.
Source: Wall Street Journal