Unilever not done with food unit makeover
LONDON — Selling its frozen meals business last fall and its Skippy peanut butter brand earlier this year is only the tip of the iceberg for Unilever P.L.C. as it reorganizes the makeup of its foods business.
In a Jan. 23 conference call with analysts to discuss full-year results for fiscal 2012, Paul Polman, chief executive officer, said the company continues “to shed the non-core and margin-dilutive parts of the (food) portfolio and will continue to do so.”
The shedding of businesses began in December 2011, when Unilever completed the sale of its Mrs. Dash, Molly McButter, Sugar Twin, Baker’s Joy, Static Guard and Kleen Guard brands to Parsippany, N.J.-based B&G Foods, Inc. for $325 million in cash. The shedding continued in September 2012, when Unilever completed the sale of its Bertolli and P.F. Chang’s Home Menu frozen meals business to Omaha-based ConAgra Foods, Inc. for $267 million. Most recently, Unilever earlier this month agreed to sell its Skippy peanut butter brand to Austin, Minn.-based Hormel Foods Corp. for $700 million.
Mr. Polman said Unilever’s food business now comprises three core activities: margarine, dressings and savory.
Despite the fact the margarine markets are down and continue to decline, Unilever has grown its share, Mr. Polman said. Meanwhile, dressings have been “a healthy business,” he said, noting Unilever continues to expand the business with a good pipeline of innovation.
It is the company’s savory business, though, that Mr. Polman sees the most potential, particularly as it relates to emerging markets.
“Our emerging market business is growing well,” Mr. Polman said. “Our European business, where too much of that is, because we have a relatively small business in the U.S., our European business gets the double-whammy of being in Europe already with mature shares, if you want to, in markets that are down. And then there’s a little drag on the savory business because of non-strategic brands that we will continue to look at and find solutions for.
“I am convinced that with our focus now on the emerging markets and our innovation pipeline that we can actually bring the growth rate of that business up.”
While not identifying brands that the company would consider divesting, Mr. Polman noted Unilever has about €500 million to €750 million ($665 million to about $1 billion) of turnover that needs to be looked at because it’s either a distraction, it’s margin dilutive or it has limited potential for global expansion.
“We can afford, with our current growth rates and momentum, to be a little stricter on that because we have enough opportunities to focus the organization behind businesses that are really important to us,” he said.
“I’m talking about these smaller businesses that you might find under some of these conditions are not belonging to one of the global franchises, not being globally expendable, being diluted for the top and bottom line,” Mr. Polman explained. “Then you have to have a very good explanation of why it doesn’t work. We for a long time held onto our frozen food business in Italy under the excuse that we couldn’t sell ice cream otherwise. That turned out to be a fallacy. We sold that business. We did reasonably well in selling it. It allowed us to focus more, and our Italian business, despite the tough environment there, is doing reasonably well.
“So you get your returns by doing that. You have to be very selective. And likewise on some of the other minor businesses that you might not even hear about, but the Brazilian tomato business was a commodity business that we ended up having from an historical perspective. We’re not going to expand canned tomatoes globally. We have significantly more exciting initiatives, like the baking bag or the jelly bouillons that are high-margin businesses, growing through the franchise like Knorr. So we will be looking at those type of things, carved out, probably a little bit more skewed still in the food side where there are less — sorry, where there are more remnants still than in the personal care side. But there you have it. And we’ll talk to them in due time.”
Net profit at Unilever in fiscal 2012 totaled €4.9 billion ($6.5 billion), up 7% from fiscal 2011, while operating profit totaled €7 billion ($9.3 billion), up 9%. Full-year revenues increased to €51.3 billion ($68.3 billion) behind underlying sales growth of nearly 7%.
Core operating margin in the company’s food business was flat, while revenues were €14.4 billion behind underlying sales growth of 1.8%.