Unilever UL -0.31%
PLC reported higher quarterly sales growth but warned its profit margin would fall sharply this year as owner of Dove soap and Ben & Jerry’s ice cream grapples with the impact of soaring costs in the world.
The bearish outlook comes as the consumer goods giant is already under pressure from investors to accelerate its growth. That pressure has intensified in recent weeks following a much-criticized, and now aborted, $68 billion bid for GlaxoSmithKline PLC’s consumer healthcare business, and the announcement that the Activist investor Trian Fund Management LP had taken a stake in the company.
On Thursday, Unilever said demarches to shareholders over the past few weeks had shown they had “no appetite” for the company to pursue major acquisitions in the foreseeable future. “The message we’ve received is crystal clear and we’ve heard it,” Chief Financial Officer Graeme Pitkethly said in a call with reporters.
Instead, Unilever said it would repurchase 3 billion euros, or about $3.43 billion, of shares over the next two years and limit itself to smaller deals.
Several analysts have suggested Unilever could consider splitting off or selling its food and beverage business, which includes brands of ice cream, Hellmann’s mayonnaise and Knorr soup cubes. However, Mr Pitkethly said on Thursday there were strong synergies between these businesses and the rest of Unilever, and the company would focus on improving the performance of these units.
Overall, for the fourth quarter, Unilever reported underlying sales growth of 4.9%, entirely driven by higher prices, with stable volumes. The company did not disclose its earnings figures for the quarter.
Unilever said it expects underlying sales growth this year of between 4.5% and 6.5%. But it expects its underlying operating margin for 2022 to fall to between 16% and 17%, the company said, as its costs for raw materials, packaging and distribution remain high. In 2021, the margin decreased by 0.1 percentage point to 18.4%. The company expects input cost inflation in the first half of the year of more than 2 billion euros. Mr Pitkethly said Unilever would maintain investment in brands, research and capital spending despite high inflation.
The expected margin decline was much steeper than many analysts had expected, sending shares down 2% in morning trading in London. RBC analyst James Edwardes Jones said the margin forecast was “quite shocking” and implied Unilever’s ability to raise prices was very limited.
In the fourth quarter, the company raised prices by 8.9% in Latin America and 2.9% in the United States. However, in Europe, prices rose just 0.2% as the company resorted to fewer discounts and offers instead, Pitkethly said.
Mr Pitkethly said the company had faced potential big price hikes from retailers in markets like France, but Unilever was now starting to try to raise prices there too.
The company is grappling with a 100% increase in soybean oil, a 130% increase in palm oil, and much higher shipping and transportation costs, among other things, it said. he adds.
To respond more quickly to consumer trends and cut costs, Unilever recently announced plans to restructure its operations into five stand-alone divisions from its current three, reshuffle senior management and cut jobs.
On Thursday, Unilever said the reorganization would save it 600 million euros over two years.
Unilever has also shown ambition to push further into health, beauty and hygiene products, which it says have better growth prospects.
For the fourth quarter, Unilever said its existing beauty and personal care division increased its underlying sales, which eliminate the impact of currencies and mergers and acquisitions, by 6.2%. Sales of its home care business rose 5% by the same amount, while its food and refreshments sales rose 3.2%.
Write to Saabira Chaudhuri at [email protected]
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