Last Tuesday, Unilever PLC (NYSE: UL) revealed its plans to spin off its ice-cream business. Getting rid of the home of Ben & Jerry's means cutting 7,500 jobs as part of the company's cost-savings program. The consumer goods company plans to complete the spinoff by the end of 2025 with the CEO hinting on Sunday that the Netherlands has a good chance of becoming the division's listing host.
Unilever Is On A Cost-Cutting Mission
After it spins off the business that makes 16% of its global sales and contributes up to 40% of total sales in some countries, Unilever promises to deliver mid-single-digit underlying sales growth along with modestly improving its margins. Over the next three years, Unilever aims to save around $869 million in costs.
Schumacher's Agenda Is To Re-Invigorate The Company
When Hein Schumacher got behind the CEO wheel last July, he committed to simplify the business in order to get Unilever out of the underperforming circle as his predecessor was criticized for expanding the portfolio so much that it distracted management from the company's best-sellers. Ice-cream is a volatile business and one that has been dragging Unilever down for quite some time. After Alan Jope expanded Unilever's portfolio to about 400 brands, Schumacher decided to focus on 30 key brands which account for 70% of the company's sales, while taking action to improve the gross margin, and excluding any major undertaking, including transformational acquisitions.
Fourth Quarter Results Showed Unilever Needs To Do More
When it reported fourth quarter earnings last months, figures showed Unilever isn't regaining lost market share as quickly enough, and that it needs to do more to rebuild it as well as to improve its margins. Its rival, the Procter & Gamble Company (NYSE: PG) reported mixed results at the end of January. Although price hikes boosted revenue, the latest quarterly report showed consumers decided to pull back on their purchases of P&G products.
P&G also narrowed its full year outlook for adjusted earnings, while lowering its unadjusted earnings due to plans that include restructuring as well as the write off of Gillette. P&G also reported its feminine, baby and family care segment reported a 2% volume drop due to weakened demand. The beauty segment continued to struggle, with P&G reporting flat volume for the quarter. The health care division experienced a 3% volume drop due to the delayed start of the cold and flu season.
Unilever's focus is on simplifying the business and stepping up its performance culture.
Unilever now needs to focus on doing fewer things, the ones it does best and it needs to do them better. Compared with its other businesses, ice-cream has quite distinct characteristics and it seems everyone agrees that its potential will be better realized through a different structure.
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