Unilever Struggles to Keep Rising Costs From Spoiling Rebound

(Bloomberg) -- Unilever Plc rode out Covid as consumers kept buying staples like shampoo and food seasonings during lockdowns. Now higher costs threaten to tarnish the Tresemme and Knorr brand owner's exit from the pandemic.

Raw material prices will probably rise more in 2021, Chief Financial Officer Graeme Pitkethly said on a conference call with reporters. The shares fell as much as 4.4%.

Concern about higher costs overshadowed the return of a previous sales target for annual underlying growth of 3% to 5%. Chief Executive Officer Alan Jope's job has gotten harder after the pandemic led to the weakest revenue growth in almost two decades last year.

The results were “underwhelming” and Unilever's margins missed estimates on restructuring charges, wrote Bruno Monteyne, an analyst at Sanford C. Bernstein.

The company also anticipates a weakening of currencies in emerging markets that have been worst hit by Covid-19, further crimping revenue growth, CFO Pitkethly said.

“We're going to have to be at the top of our game on pricing going into 2021,” Pitkethly said.

Unilever also forecast 1 billion euros ($1.2 billion) in restructuring costs this year and next.

Still, Unilever is becoming more optimistic on improving prospects for the U.S., China and India -- three countries that account for a third of its sales. To tap demand from higher-spending millennial shoppers, Jope is also defining new priorities, including more focus on plant-based foods and high-end beauty.

The results are Unilever's first since the company consolidated its headquarters in London, ending its longstanding Anglo-Dutch structure.

Jope said an initial public offering for its tea business is a “highly likely outcome,” though Unilever is open to talks with private-equity companies that may be interested in buying it. Unilever management said in October the company aims to separate the unit, which includes brands such as PG Tips, by the end of this year.

Jope is also prioritizing the company's e-commerce business, where revenue rose 60% last year on initiatives such as adding Magnum and Ben & Jerry's ice-cream brands to orders from pizza partners such as Domino's.

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