UN Unilever NV

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 He has been replaced by Nicolas Liabeuf, formerly senior vice president of marketing operations.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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