UN Unilever NV

By Saabira Chaudhuri 

LONDON -- Unilever PLC reported slower sales growth for last year, spooking investors and underscoring the cost-cutting pressure that consumer-goods companies face as they struggle to sell more of their staples, from soap to packaged food, around the world.

Unilever, the world's second-largest consumer-goods firm by sales after Procter & Gamble Co., is hoping to squeeze about EUR1 billion ($1 billion) in savings out of costs by next year in an effort to boost margins and stay profitable. It reported a 5.5% increase in net profit for 2016 over the year earlier, to EUR5.5 billion.

But the maker of Hellmann's mayonnaise and Ben & Jerry's ice cream, hasn't been able to lift sales growth, a key metric. Revenue dropped 1% on the year, hit by unfavorable currency changes. So-called underlying sales growth, which strips out foreign exchange and acquisitions, slowed to 3.7% from 4.1% in 2015. Unilever shares closed 5% lower on Thursday in London.

Consumer-goods firms are struggling with a host of headwinds they have little control over: fluctuating exchange rates, rising commodity prices that often feed into packaging or ingredient costs and tepid global economic growth that has weighed on sales. All that has triggered a sharper focus on the few things executives can still influence: costs and nimbleness meeting fast-changing consumer tastes.

So far, results have been mixed. At P&G, years of cost-cutting only recently have started to bear fruit. Last week, the maker of Gillette razors and Pampers diapers posted better-than-expected organic growth -- which strips out foreign exchange and acquisitions -- in its latest quarter, and it raised its fiscal-year growth projection.

Kimberly-Clark Corp., which makes Kleenex and Huggies, recently completed a cost-cutting plan aimed at saving $140 million annually. But it said earlier this week it still forecasts tepid sales growth for 2017.

Last year, Unilever started its own radical cost-cutting effort. It adopted so-called zero-based budgeting -- a cost-management practice based on justifying all costs from scratch each year.

The savings is funding an organizational reshuffle aimed at boosting sales that Chief Financial Officer Graeme Pitkethly told investors was "the biggest change Unilever has undergone in the last 10 years." It is restructuring its workforce to direct more resources to local markets, and giving product-category focused teams there more autonomy.

That, Unilever hopes, will makes them more nimble to respond to local tastes or trends. In an interview, Mr. Pitkethly said Unilever's U.K.-based personal-care team, for instance, now have the autonomy to change the size and packaging of some Unilever products so they stay profitable with a price tag of GBP1, or about $1.26, for British discount retailers like Poundland.

Meanwhile, Unilever continues to struggle to boost sales. Emerging markets, which make up the bulk of Unilever sales, grew 6.5% down from 7.1% in 2015. Overall volumes fell 0.4% in the fourth quarter, from the year-earlier period. It was the second negative-growth quarter in a row. Sales were hit in particular by Brazil's economic crisis and India's demonetization program. For the year, volumes edged up 0.9% from 2015.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

January 26, 2017 14:42 ET (19:42 GMT)

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