Sales slip in Unilever's Foods, Refreshment segments

by Jeff Gelski
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LONDON — Unilever P.L.C. experienced disappointing third-quarter results in its Foods and Refreshment segments after divesting both the global Skippy brand and the company’s North American frozen meals business within the past year.

“In the U.S., we’ve been reshaping our portfolio,” said Jean-Marc Huet, chief financial for Unilever, in an Oct. 24 earnings conference call. “We talked about that in Q2, shedding less profitable, lower-margin businesses, and in the process we’ve been losing some share in a very competitive market.”

Globally the company’s Foods segment had revenue of €3.2 billion ($4.4 billion) in the quarter, down from €3.6 billion in the previous year’s third quarter. Underlying sales growth fell 0.3%, and underlying volume growth dipped 1%. Spreads, despite improving, continued to hold back Foods performance.

Globally the Refreshment segment had revenue of €2.6 billion, down from €2.7 billion in the previous year’s third quarter. Underlying sales growth increased 0.7% but underlying volume growth fell 1.6%. Unilever’s decision to withdraw from some low margin products impacted Refreshment results in North America.

Divestitures affecting third-quarter results included Unilever selling its North American frozen meals business to ConAgra Foods, Inc. late last year and Unilever completing the sale of its global Skippy business to Hormel Foods Corp. in January. Unilever also completed the sale of its Wish-Bone and Western dressings brands to Pinnacle Foods, Inc. in October.

In geographical breakdowns, Unilever’s North American operations had third-quarter revenue of €2 billion. Underlying sales growth fell 1.9%, and underlying volume growth fell 2.7%. Lower volumes in North America reflected the company’s decision to withdraw some low margin ice cream products and continuing weakness in spreads.

“So obviously, as you balance a little bit in markets, the maxing the mix, there is more pressure on top-line growth,” said Paul Polman, chief executive officer of Unilever, in the Oct. 24 call. “You cannot by focusing on maxing the mix expect that you accelerate the top-line growth as well. You have to be realistic.

“And a good example is what we pointed out is the discontinuation of some of these s.k.u.s in the United States. Now we could have not done it this quarter and shown a little better numbers and have less to explain, but that’s why we keep saying we don’t run it on a quarterly basis, and it’s better to do these things right and get the long-term benefits than getting very excited about 90-day periods.”

Companywide, Unilever had third-quarter revenue of €12.5 billion, down 6.5% from the previous year’s third quarter. This year’s third quarter included a negative currency aspect of minus 8.5%.  Acquisitions and disposals, which reflected the disposal of non-core businesses, reduced revenue by 1%. Underlying sales growth in the third quarter was 3.2% with emerging markets up 5.9%. Underlying volume growth was 1.9%.

Through the first nine months of the year Unilever companywide had revenue of €38 billion, down 2% from the previous year’s third quarter after a negative currency impact of 5%. Underlying sales growth for the first ninth months was 4.4% with emerging markets up 8.8%. Underlying volume growth for the first ninth months was 2.4%.

“Underlying sales growth of 4.4% over the first nine months is ahead of our markets,” Mr. Polman said. “Emerging markets continue to be the main driver of our growth, and, despite the current slow-down, they remain a significant growth opportunity, which the company is well-placed to capitalize on.

“We have not yet seen an improvement in market conditions in North America or Europe.”
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