NEW YORK (Reuters) - Strong demand has allowed large manufacturers to pass on higher commodity costs to their customers, but most have also relied on cost-cutting and productivity improvements to make up the shortfall, CEOs said this week.
The ability to pass on high prices depends on factors like the length of a contract and the type of product sold, executives said at the Reuters Manufacturing and Transportation Summit in New York. But even when companies are able to charge more, some choose not to.
Diversified manufacturer Emerson Electric Co. (EMR.N: Quote, Profile, Research, Stock Buzz) spends about $600 million a year on steel and another $300 million on copper, used in electrical components and power conversion products, for customers like United Technologies' Carrier unit (UTX.N: Quote, Profile, Research, Stock Buzz), or Caterpillar Inc. (CAT.N: Quote, Profile, Research, Stock Buzz).
"We do have pricing capabilities," Emerson CEO David Farr said at the summit. "It's not something where we use our position to go out and jam it down people's throats. We're in it for the long term."
Emerson contracts range from a year to five years, but provide openings every few months for cost adjustments. Emerson is talking with customers about price increases, but won't sacrifice goodwill to make a quarter's numbers look better.
"We have close relationships with people like Caterpillar, Whirlpool, Ericsson, Home Depot, Lowes," Farr said, and to annoy them for short-term gain is crazy.
Manufacturing companies, which buy raw materials in bulk and turn them into finished products, represent one of the first stages in feeding inflation through the economy. A jump in consumer prices spooked investors on Wednesday, raising fears inflation will force the U.S. Federal Reserve to extend its string of interest rate increases.
High raw materials prices, as well as transportation costs, have led Rockwell Automation (ROK.N: Quote, Profile, Research, Stock Buzz), which makes systems used to make factories run smoothly, to go back to customers who've already accepted price increases.
"We have a large challenge to offset those with productivity," said Rockwell CEO Keith Nosbusch. Continued...
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