Unilever PLC (NYSE:ULC) said it would divest its margarine and spreads business in an effort to answer a problem of slowing sales. Analysts have indicated the division could go for somewhere between $7.5 billion and $8.5 billion and contribute to broader restructuring by the company.
Unilever, which walked away from a $143 billion takeover offer from The Kraft Heinz Co. (NYSE:PGC) when the company appeared to follow P&G’s suit and run “30% fewer ads as part of a cost-cutting drive.” The news resulted in a 4% dip in stock prices for major ad agency WPP plc (NASDAQ: WPPGY). Unilever also said it would reduce the number of consultants it hires by 40%.
It’s all part of that larger restructuring effort following the Kraft-Heinz bid. All part of an industrywide effort to deal with weak profits by cutting costs in every area that can be identified and exploited. In those efforts Unilever is not alone.
Private-equity firm 3G Capital Partners LP has tried to prove zero-base budgeting or justifying each expense from scratch every year can gain bigger margins when sales are weak. Meanwhile, Mondelez International Inc. (NASDAQ:MDLZC) has closed or sold 40 factories in the last four years. Kellogg Co. (NYSE:KC) said recently it has made efforts to chop and cut all waste.
Slim Jim jerky and Chef Boyardee canned pasta owner, ConAgra Brands Inc. (NYSE:CAGC), spun off its frozen potato business and sold its private-label division. The company said it was considering divesting other brands.
The Procter & Gamble Effect
The world’s biggest advertiser, Procter & Gamble has already cut the number of ad agencies it works with by 50% as a cost-cutting move. “We fed the agency beast by hiring thousands of them,” said P&G Chief Brand Officer Marc Pritchard. Now Ford Motor Co. (NYSE:FC) just reported a 7.2% decline in auto sales, signaling a potential move into the cost-cutting arena.
Reducing advertising is only part of the picture but with major corporations like Unilever and P&G, cost-cutting has a ripple effect across many other parts of the business world.