UN Unilever NV

By Denise Roland and Annie Gasparro 

LONDON -- Unilever PLC added a big dollop of margarine to the pile of packaged-food businesses up for sale around the world, as the industry grapples with fast-changing consumer tastes and slowing sales.

The Anglo-Dutch giant said Thursday it would divest its margarine and spreads business -- a unit that analysts say could fetch as much as $7.5 billion to $8.5 billion -- as part of a broader restructuring. That effort includes cost-cutting, a dividend boost and a share buyback, and is aimed at speeding up returns after Unilever walked away from a $143 billion takeover offer from Kraft Heinz Co.

The decision to part ways with margarine, a 145-year-old business for Unilever, also comes at a time when packaged-food and beverage titans around the world are struggling to appeal to shoppers buying fresher food. Smaller brands, meanwhile, are stealing shelf space. Food prices in many markets have been falling, making it hard to compensate for lower volumes.

In February, Nestlé SA, the world's largest packaged-food company by sales and an industry bellwether, abandoned its long-running target for sales growth amid sluggish food revenue. Last year, its prepared-food division, which includes brands like Stouffer's and Lean Cuisine, grew just 2.7% stripping out currency changes and acquisitions. In 2016, the company as a whole posted its weakest comparable growth in at least two decades.

Last year "wasn't easy," said Nestlé Chief Executive Ulf Mark Schneider at the company's annual meeting Thursday.

Companies have responded largely by cutting costs or shedding their slowest-growing units. Private-equity firm 3G Capital Partners LP, which gobbled up Kraft and Heinz, proved its zero-based budgeting -- essentially justifying each expense from scratch every year -- can squeeze out fatter margins amid weak sales. Mondelez International Inc. has closed or sold 40 factories in the last four years. Kellogg Co. recently said it has "chopped and cut all the waste."

But the cutting can only go so deep, and is no longer enough to offset the declining sales trends, said Bernstein analyst Alexia Howard.

Even Kraft Heinz's margin expansion has slowed as of late, a development that analysts say encouraged it to start looking for big acquisitions like Unilever, where it can cut more fat.

Unilever had already embarked on its own version of zero-based budgeting. On Thursday it said various new initiatives -- including combining its foods and refreshments units, more efficient marketing spending and supply-chain savings -- would allow it to increase cost savings from an expected EUR4 billion ($4.26 billion) to EUR6 billion through 2020. The company said it expects to improve margins by at least eight-tenths of a percentage point this year.

The company is aiming for 20% operating margins, excluding restructuring, by 2020, compared with 16.4% in 2016. Unilever shares ended up 1% in London.

But the company's biggest move was the decision to divest its margarine and spreads business. An array of other food assets are already up for sale as rivals pivot toward faster-growing personal-care and home products, or try to maximize scale in the food businesses they retain.

Reckitt Benckiser Group PLC on Monday put its food unit, which includes French's, America's best-selling mustard, on the block. Reckitt is consummating its $16.6 billion agreement to buy baby formula maker Mead Johnson Nutrition Co. France's Danone SA last week put its Stonyfield organic yogurt unit up for sale, seeking to clear the biggest antitrust hurdle to its $10.4 billion acquisition of WhiteWave Foods Co.

ConAgra Brands Inc., the owner of Slim Jim jerky and Chef Boyardee canned pasta, spun off its frozen potato business and sold its private-label division. It is considering divesting other brands.

At Unilever's spreads business, which includes brands like Country Crock and I Can't Believe It's Not Butter, sales have declined steadily for years in developed markets such as Europe and the U.S. That is despite attempts to restructure the business, launch new products and buoy sales through marketing campaigns.

Still, Chief Executive Paul Polman had previously said he would only consider selling the unit if he found someone willing to pay the right price. That changed after the Kraft bid.

"We need to accelerate our plans to unlock further value, faster," Mr. Polman told reporters Thursday. He said the Kraft offer "raised expectations" among investors.

Margarine is no ordinary business for Unilever. The world's second biggest consumer-goods company behind Procter & Gamble Co., Unilever was founded in 1929 through the combination of a British soap company and a Dutch margarine maker, which in turn dates back to 1872. Unilever is the largest margarine seller in the world.

Unilever could have a tough time selling the unit -- with sales of $3.2 billion a year -- on its own, given today's headwinds, including consumers' push for more natural foods. Since 2010, Americans have chosen real butter over spreads and margarine -- reversing a decadeslong pattern.

Brian Blackstone in Zurich contributed to this article.

Write to Denise Roland at Denise.Roland@wsj.com and Annie Gasparro at annie.gasparro@wsj.com

(END) Dow Jones Newswires

April 06, 2017 14:42 ET (18:42 GMT)

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