Unilever Unit Head's Resignation Reignites Spin-off Speculation -- Update
January 19 2016 - 4:15AM
Dow Jones News
By Saabira Chaudhuri
LONDON-- Unilever PLC reported little progress in its margarine
business and confirmed that the division's chief executive had
resigned, sparking further speculation that the slow-growing
business could eventually be sold.
The Wall Street Journal reported Tuesday that Sean Gogarty had
stepped down to pursue other opportunities, according to the
contents of an internal memo. He has been replaced by Nicolas
Liabeuf, formerly senior vice president of marketing
operations.
"Unilever (executives) are clearly losing patience with this
division," said Société Générale analyst Warren Ackerman. "We have
suggested they may exit or deconsolidate spreads this year."
The developments come as Unilever reported strong results for
fiscal 2015, with sales buoyed by currency gains, while the company
logged strong growth in its home-care and refreshments arms.
The maker of Magnum ice cream, Dove soap and Axe deodorant
posted a net profit of EUR4.91 billion ($5.34 billion), compared
with EUR5.17 billion last year, a period when it was buoyed by
gains from divestitures. Core operating profit climbed 12% to
EUR7.9 billion. Revenue of EUR53.3 billion was up 10%, or 3.9% at
constant currencies. Underlying sales growth--which strips out the
impact of acquisitions, disposals and currency movements--was 4.1%,
compared with 2.9% in the same period last year.
Sales in emerging markets grew 7.1%, up from the 5.7% growth the
company reported last year, as Unilever was helped by strong price
growth.
In its earnings report, Unilever said sales in the Baking,
Cooking and Spreads unit "continued to decline as we were not able
to stem the sustained market contraction in developed countries."
The company in December 2014 announced the unit's creation, naming
Mr. Gogarty, who was then executive vice president of spreads, as
its CEO and igniting speculation that the business would be
sold.
Unilever has in the past insisted that it won't sell spreads,
which gives it a consistent cash flow and makes up roughly 5% of
company sales but about 8% of profit, according to Société
Générale. However as Unilever rolls out more aggressive
cost-cutting measures across the business, grows margins in
home-care, and strengthens its personal care arm, analysts have
posited that its reliance on cash from the spreads unit is
diminishing.
On Tuesday, Exane BNP Paribas analyst Jeff Stent said Mr.
Gogarty leaving Unilever amounted to "inevitably increasing
speculation on an overall exit."
In an interview, Unilever's chief financial officer, Graeme
Pitkethly, said Unilever has been trying to "expand out into other
more on-trend parts of the category beyond simply margarine."
"We look at everything through a lens of value," Mr. Pitkethly
said when asked by the Journal if Unilever would sell or strike a
joint venture for the spreads unit, valued at EUR7 billion,
according to Société Générale. "We aren't going to simply offload a
problem if it's declining on the top line, we are driven by value,"
he said.
Margarine has always been a part of Unilever's story. The
company was founded in 1929 through the merger of a British soap
maker Lever Brothers and a Dutch margarine company that began
making the plant-derived spread in 1872.
But the world's largest margarine maker--which owns brands such
as Flora and Bertolli--faces an uphill climb to bring spreads back
to growth.
After decades of being held up as the culprit for clogged
arteries and expanding waistlines, butter has been enjoying a
comeback as consumers have come to see it as being more wholesome
and natural than margarine. Last year, unit sales of butter and
butter blends in the U.S. climbed 4.2% from a year earlier while
sales of margarine plummeted 8.9%, according to data from
Chicago-based research firm IRI.
In October, McDonald's Corp. said switching from using margarine
to butter on its Egg McMuffins in the U.S. pushed sales of the
breakfast sandwich up by a double-digit percentage. "Customers
appreciated the change," McDonald's CEO Stephen Easterbrook said
last fall.
Meanwhile, butter prices last year fell below those of margarine
for the first time, according to Unilever CEO Paul Polman, after
Russia banned dairy imports from Europe.
Mr. Polman has likened separating spreads to putting a sick
child in a separate room to his siblings with special care until he
recuperates. The company is working on pushing into baking
ingredients, liquid margarine for cooking and blends of vegetable
oil and butter and is also trying to cut the unit's costs.
"It only needs modest growth for the economics to work but if it
continues to decline, we don't see much of a future," said Mr.
Ackerman earlier this month. "Effectively, it has been given a
warning and it will be interesting to see if it is given the red
card."
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
January 19, 2016 04:00 ET (09:00 GMT)
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