ULVR Unilever Plc

Slow increase in sales puts pressure on new CEO as competition in U.S. market intensifies

By Saabira Chaudhuri 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (December 18, 2019).

LONDON -- Unilever PLC warned it would miss its sales target for the year, blaming difficulties in the U.S. and other key markets and setting up an early challenge for Chief Executive Alan Jope, less than a year in the top job.

The owner of Dove body wash and Ben & Jerry's ice cream said sales growth on an underlying basis -- which strips out currency and acquisition impacts -- would be below its guidance of 3% to 5% this year and at the low end of that range in 2020. Earnings, margin and cash aren't expected to be affected, it said.

Unilever's American depostary receipts fell 9.1% Tuesday in New York.

Unilever has struggled with slow growth and fierce competition in North America -- its biggest market by sales -- where volumes declined in the third quarter. On Tuesday the company said it was also facing challenges in India and West Africa.

The company has been battling competition in the U.S. from Procter & Gamble Co. in categories such as shampoo. P&G, which makes Tide detergent and Bounty paper towels, has invested in product quality, packaging, marketing and retail execution.

Unilever also faces a challenge from a growing number of nimble, local brands fueled by the move to online shopping. Unilever said in February that 6,000 new brands had cropped up across six of its markets for beauty and personal care over the past two years.

While the company said there were "early signs of improving performance" in North America, it warned a full recovery would take time.

RBC analyst James Edwardes Jones estimated the figures imply the company's lowest quarterly sales growth for more than a decade and said Unilever must increase investment.

"This is what happens when a company cuts marketing, while its competitors are increasing theirs," he said.

Mr. Jope, on a call with reporters, said Unilever was accelerating its cost-savings plan to fund greater investment in its business, and that it would also consider selling slow-growing units.

While he didn't specify, analysts have long suggested the company might look to sell some food brands. Rival Nestlé SA, after missing sales targets for several quarters, has sharpened its focus on high-growth categories such as coffee and pet food, while leaving slower-growth businesses such as U.S. confectionery, a strategy that is paying off.

Mr. Jope also said the company was working to attract new consumers to its brands and come up with new products. He said investments in U.S. ice cream, hair care and dressings -- lately problem categories in America -- had already started to pay off.

"We are far from crisis conditions," he said. "This is just a little bit more turbulent than normal."

Unilever has also shuffled top management as part of its efforts to jump-start sales.

Unilever this month said it was replacing its North America head with the former chief executive of Revlon Inc. That followed the naming of a new chairman and new beauty and personal care head this year.

However, having new faces "leaves some uncertainty over the approach and plans at the group," wrote analysts at Société Générale in a recent note. "Investors we speak to are increasingly uneasy about an opaqueness of what Unilever thinks it can achieve in the medium term and what is changing to get that delivered."

Some analysts have also expressed concern that Mr. Jope, a marketeer by training who took over in January, would be less focused on financials than his predecessor Paul Polman.

"CEO Alan Jope is more enthusiastic talking about sustainability, digital and the talent agenda than the nuts and bolts of growth drivers, cost savings and portfolio choices," wrote Jefferies analyst Martin Deboo in a recent note.

A Unilever spokesman declined to comment on recent analyst remarks.

At the same time, others have welcomed Mr. Jope's indication that Unilever will pull back on acquisitions. Under Mr. Polman, Unilever made a string of small buys to boost exposure to high-growth categories, but growing those has proved difficult.

Aside from challenges in North America, the company is also grappling with an economic slowdown in India -- its largest market by volume. Cash shortages in rural areas along with a combination of flooding and droughts over the monsoon season have hindered demand. Growth is currently trending at less than 5%, down from about 10% last year, Mr. Jope said Tuesday.

The company also flagged West Africa as a problem area. In Nigeria and Ghana -- Unilever's two largest markets in the region -- Mr. Jope said the company is facing "a double whammy" of slowing demand and disruptions to distribution.

Corrections & Amplifications An earlier version of the chart with this article misspelled Procter & Gamble as Proctor & Gamble. (Dec. 17, 2019)

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

December 18, 2019 02:47 ET (07:47 GMT)

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