Unilever Spins Off Ice Cream Division to Boost Profits; Initiates Cost-Saving Measures Impacting 7,500 Jobs

By Moon Harper

Mar 20, 2024 01:08 AM EDT

Unilever announced on Tuesday that it is spinning off its ice cream division, which includes well-known brands like Magnum and Ben & Jerry's, and reducing its workforce as part of a new cost-saving initiative.

The Ice Cream Division Spinoff

According to Unilever, which is listed in London, the spinoff will commence promptly and is anticipated to be finalized by the end of 2025. CEO Hein Schumacher said during a call with journalists that the ice cream division is transitioning to a separate headquarters in Amsterdam, indicating openness to various listing options. Activist investor and board member Nelson Peltz's fund and Unilever shareholder Aviva embraced the plan.

After the split, Unilever aims to achieve mid-single-digit underlying sales growth and slight margin improvement. The ice cream division represents approximately 16% of Unilever's worldwide sales, with contributions as high as one-third or 40% in certain countries.

Cost-Saving Programs to Reduce Expenses

The company, known for brands like Dove soap, Marmite, and Hellmann's condiments, introduced a cost-saving program to reduce expenses by approximately 800 million euros ($869 million) over the next three years. These initiatives are expected to affect roughly 7,500 jobs worldwide, mainly office positions, with total restructuring expenses estimated to be around 1.2% of overall turnover during this period. The reductions will impact approximately 5.9% of Unilever's workforce, comprising around 128,000 individuals.

Schumacher stated they examine various areas within the organization, including the head office, corporate center, business group coordination points, and business units in different countries. However, he did not provide details on which regions would be most affected by job reductions.

Unilever's Underperformance

Schumacher's decision marks a significant shift since he assumed the CEO role in July and outlined strategies to regain investor trust by streamlining the business in October, acknowledging Unilever's recent underperformance. His predecessor, Alan Jope, faced criticism for expanding the group's brand portfolio to approximately 400, which diverted management attention from its top-performing brands.

Unilever's recent underperformance caught the interest of billionaire activist investor Peltz. Peltz joined Unilever's board in 2022 through his Trian investment vehicle and has a history of restructuring consumer goods companies. According to LSEG data, Trian holds a 1.45% stake in Unilever and expressed its support for the strategic initiatives announced by Unilever.

Positive Outlook Ahead

Trian said in a statement that Nelson Peltz anticipates collaborating with Unilever's Board members as the company implements initiatives to enhance long-term stakeholder value.

In early trading, Unilever's shares surged almost 6% and had risen by 3% by 1100 GMT. Over the past year, the stock has declined by 5.8%.

Richard Saldanha, a portfolio manager at Aviva, which is Unilever's 17th largest shareholder with a 0.5% stake, stated that ice cream has been quite a volatile business and has also been dilutive from a margin standpoint, "so we think strategically this makes sense."

Jack Martin, a portfolio manager at Oberon Investments, which holds a small Unilever stake, expressed optimism for shareholders regarding the ice cream division, which has been a drag on the business for some time, and expects the share price to respond accordingly in the morning.

In October, Schumacher announced that the company would concentrate on 30 primary brands, constituting 70% of its sales, strive to enhance its gross margin, and refrain from making significant or transformative acquisitions.

Schumacher informed Reuters last month about his intention to streamline Unilever's workforce, emphasizing an agenda that will make them very busy for the next 18 months.