UN Unilever NV

Consumer-goods firm posted higher profit in 2016, but struggled to boost demand

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) 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, to EUR5.5 billion.

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

Unilever isn't alone. 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 sharpened the focus on the few things executives can still influence: costs and nimbleness in meeting fast-changing consumer tastes.

So far, results have been mixed. At P&G, years of cost-cutting only recently started to bear fruit. Last week, the maker of Gillette razors and Pampers diapers posted better-than-expected underlying growth for 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 cost-cutting campaign, including so-called zero-base budgeting -- a management practice based on justifying all costs from scratch each year.

The savings are funding an organizational reshuffle at the company 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.

Unilever hopes the move will makes it more nimble in responding to local tastes or trends. In an interview, Mr. Pitkethly said Unilever's U.K.-based personal-care team, for instance, now has 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 demand. Sales in emerging markets, which make up the bulk of Unilever's business, grew 6.5%, down from 7.1% growth in 2015. Overall, fourth-quarter volumes fell 0.4% from a year earlier, marking a second consecutive quarterly decline. Sales were hit in particular by Brazil's economic crisis and India's demonetization program. For the year, volumes edged up 0.9%.

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

(END) Dow Jones Newswires

January 27, 2017 02:47 ET (07:47 GMT)

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