Company answers calls to boost returns by putting its spreads
business on the block
By Denise Roland and Annie Gasparro
LONDON -- Unilever PLC added a big dollop of margarine to the
pile of packaged-food businesses up for sale around the world, as
the industry grapples with fast-changing consumer tastes and
slowing sales.
The Anglo-Dutch conglomerate said Thursday it would divest its
margarine and spreads business -- a unit that analysts say could
fetch in the range of $7.5 billion to $8.5 billion. The move is
part of a broader restructuring, including cost-cutting, a dividend
boost and a share buyback, that aims to bolster returns after
Unilever walked away in February from a $143 billion takeover offer
from Kraft Heinz Co.
The decision to part ways with margarine, a 145-year-old
business for Unilever, comes as packaged-food and beverage
companies around the world are struggling to appeal to shoppers now
favoring fresher food. Smaller brands, meanwhile, are stealing
shelf space. And food prices in many markets have been falling,
making it hard to compensate for lower volumes.
Unilever's move adds to the array of food assets already up for
sale as rivals pivot toward faster-growing personal-care and home
products or focus on building up certain food lines. Reckitt
Benckiser Group PLC earlier this week put its food unit, which
includes French's, the best-selling mustard in the U.S., on the
block. Reckitt agreed to buy baby-formula maker Mead Johnson
Nutrition Co. for $16.6 billion. France's Danone SA last week put
its Stonyfield organic yogurt unit up for sale, seeking to clear
antitrust hurdles to Danone's $10.4 billion acquisition of
WhiteWave Foods Co.
ConAgra Brands Inc. -- the owner of Slim Jim jerky and Chef
Boyardee canned pasta -- spun off its frozen-potato business and
sold its private-label division in 2016. It is considering
divesting other brands.
On Thursday, Unilever said various new initiatives -- including
combining its food and refreshment units, more efficient marketing
spending and supply-chain savings -- mean it can increase its
cost-savings projection through 2020 to EUR6 billion from EUR4
billion ($4.26 billion). The company said it expects to improve
operating profit margins by at least eight-tenths of a percentage
point this year from 16.4% in 2016. The company is aiming for 20%
operating margins -- a measure that excludes restructuring costs --
by 2020. Unilever shares rose 1% in London trading on Thursday.
Unilever Chief Executive Paul Polman said the competitive
landscape is changing fast and "we must ourselves continue to
change so that we can continue to compete with our model but do so
harder and faster."
The company's biggest move was the decision to shed its
margarine and spreads business. At Unilever's spreads business,
which includes brands such as Country Crock and I Can't Believe
It's Not Butter, sales have declined steadily for years in
developed markets such as Europe and the U.S. That is despite
attempts to restructure the business, launch new products and buoy
sales through marketing campaigns. Still, Mr. Polman had previously
said he would consider selling the unit only if he found someone
willing to pay the right price. That changed after the Kraft
bid.
"We need to accelerate our plans to unlock further value,
faster," Mr. Polman told reporters Thursday. He said the Kraft
offer "raised expectations" among investors.
Margarine is no ordinary business for Unilever. The world's
second biggest consumer-goods company behind Procter & Gamble
Co., Unilever was founded in 1929 through the combination of a
British soap company and a Dutch margarine maker, which in turn
dates back to 1872. Unilever is the largest margarine seller in the
world.
Unilever could have a tough time selling the unit -- with sales
of $3.2 billion a year -- on its own, given Americans have chosen
real butter over spreads and margarine, reversing a decadeslong
pattern.
Consumers' preference for fresh food has also hurt Nestlé SA,
the world's largest packaged-food company by sales and an industry
bellwether. In February, Nestlé abandoned its long-running target
for sales growth amid sluggish food revenue.
Last year, its prepared-food division, which includes brands
like Stouffer's and Lean Cuisine, grew just 2.7% excluding currency
changes and acquisitions. In 2016, the company as a whole posted
its weakest organic sales growth -- a measure that strips out
currency fluctuations, acquisitions and divestments -- in at least
two decades.
Last year "wasn't easy," said Nestlé CEO Ulf Mark Schneider at
the company's annual meeting Thursday.
Nestlé and other consumer-goods conglomerates, such as P&G
and General Mills Inc., have shed underperforming brands in recent
years as a quick way to boost profitability and focus on those with
more growth potential.
Private-equity firm 3G Capital Partners LP, which gobbled up
Heinz in 2013 and Kraft in 2015, proved that its zero-base
budgeting -- essentially justifying each expense from scratch every
year -- can yield fatter profit even amid weak sales. Mondelez
International Inc. has closed or sold 40 factories in the last four
years. Kellogg Co. recently said it has "chopped and cut all the
waste."
But the cutting can only go so deep, and it is no longer enough
to offset the sales drop-off, said Bernstein analyst Alexia
Howard.
Even Kraft Heinz's margin expansion has slowed, a development
that analysts say prompted it to start looking for big acquisitions
like Unilever, where it could have tried to do more
cost-cutting.
Kraft Heinz said in February that it "is focused on reinvesting
more of our dollars where they directly impact our business -- our
brands, our products, and most importantly, in benefiting our
consumers."
Brian Blackstone in Zurich contributed to this article.
Corrections & Amplifications Unilever has stock listings in
London and Amsterdam. An earlier version of this article
incorrectly stated that its Dutch listing was in Rotterdam, the
location of its Dutch registered office. (April 6, 2017)
Write to Denise Roland at Denise.Roland@wsj.com and Annie
Gasparro at annie.gasparro@wsj.com
(END) Dow Jones Newswires
April 07, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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