Ben & Jerry’s Owner Unilever Says Soaring Costs Will Eat Into Profit

On Thursday, Unilever said canvassing shareholders in recent weeks had shown they have “no appetite” for the company to pursue major acquisitions for the foreseeable future. “The message we have received is crystal clear and we’ve heard it,” Chief Financial Officer Graeme Pitkethly said on a call with reporters.

Instead, Unilever said it would buy back €3 billion, or about $3.43 billion, of shares over the next two years and restrict itself to doing smaller deals.

Several analysts have suggested Unilever could look to spin off or sell its food and refreshments business, which includes ice cream brands, Hellmann’s mayonnaise and Knorr bouillon cubes. However, Mr. Pitkethly said Thursday there were strong synergies between those businesses and the rest of Unilever, and that the company would focus on improving the performance of those units.

Overall, for the fourth quarter, Unilever reported underlying sales growth of 4.9% driven entirely by higher prices, with volumes flat. The company didn’t disclose profit figures for the quarter.

Unilever said it expects underlying sales growth this year to be between 4.5% and 6.5%. But it expects its underlying operating margin for 2022 to drop between 16% and 17%, the company said, as its raw material, packaging and distribution costs remain high. In 2021, the margin fell by 0.1 percentage point to 18.4%. The company expects input-cost inflation in the first half of the year of over €2 billion. Mr. Pitkethly said Unilever would keep up its investment in brands, research and capital expenditures despite high inflation.

The forecast fall in margin was far sharper than many analysts were expecting, sending shares down 2% in morning trading in London. RBC analyst James Edwardes Jones said the margin guidance was “quite shocking” and that it implies Unilever’s ability to raise prices is very limited.

In the fourth quarter, the company raised prices by 8.9% in Latin America and by 2.9% in the U.S. However, in Europe prices rose by just 0.2% as the company resorted instead to offering fewer discounts and deals, said Mr. Pitkethly.

Mr. Pitkethly said the company has faced big pushback on potential price rises from retailers in markets like France but that Unilever is now starting to try to raise prices there too.

The company is grappling with a 100% rise in soybean oil, a 130% rise in palm oil and much higher shipping and transport costs among others, he added.

In an effort to respond more quickly to consumer trends and reduce costs, Unilever recently announced plans to restructure its operations into five stand-alone divisions from its current three, reshuffle top executives and cut jobs.

On Thursday, Unilever said that reorganization would save it €600 million over two years.

Unilever has also set out ambitions to push further into health, beauty and hygiene products, which it says have stronger growth prospects.

For the fourth quarter, Unilever said its existing beauty and personal-care division grew underlying sales, which strip out the impact of currency and M&A, by 6.2%. Sales at its home-care business rose 5% by the same measure, while its food and refreshment sales were up 3.2%.

Write to Saabira Chaudhuri at [email protected]