Unilever to cut 11% of workforce

Unilever, the maker of more than 400 brands from Dove soap to Knorr soup, plans to eliminate 11 per cent of its workforce and expects sales to rise at the fastest pace since 2001. The shares rose the most in seven years.

Second-quarter profit at the London- and Rotterdam-based company rose 16 per cent, beating analysts' estimates, on price increases and ice-cream sales. Unilever, which will cut 20,000 jobs over four years, also plans to sell the North American laundry division that makes All and Wisk detergent.

Chief Executive Officer Patrick Cescau unveiled the biggest reorganisation in six years after shares and sales growth trailed those of Procter & Gamble Co., the world's biggest consumer products company. Cescau said sales will grow as much as 5 per cent this year and predicted the company will beat its margin forecast by 2010.

"It has taken an inordinately long time, but Unilever has finally got the message,'' Collins Stewart analyst Rob Mann said in an e-mailed note, raising the stock to "buy.'' "Results are better than the market had expected. This came with underlying margin expansion for the second quarter in a row. At long last Unilever has bitten the bullet on more disposals." The reductions will occur as up to 60 factories are closed or reorganised and most cost savings will be focused on Europe, the company's biggest market. Second-quarter net income rose 16 per cent to ¤1.14 billion ($1.56 billion), or 38 cents a share, up from 986 million euros, or 34 cents, a year earlier. That beat the ¤1.06 billion median estimate of 11 analysts surveyed by Bloomberg News.

Sales grew at the fastest pace in two years, led by Moo ice cream in Asia and US demand for Dove soap and face creams.

The company's targets "look conservative given the first- half performance," said Erwin Dut, an analyst at Kempen & Co. in Amsterdam. Shares of Unilever have gained a third since Cescau took over in February 2005, 50 per cent more than P&G's 22 per cent increase.

Second-quarter revenues rose 5.8 per cent excluding acquisitions, divestments and currency movements. That beat the 4.8 per cent analyst estimate and is the fastest since the 6 per cent growth in the first quarter of 2005. Sales grew 3.9 percent in the year-earlier quarter.

Annual sales growth lagged P&G since 2001 as a five-year plan to lift growth by shedding 1,200 brands failed. Sales of SlimFast diet products plunged and the company was too slow to introduce new items. Shares of P&G, the maker of Ivory soap and Pringles potato chips, have still gained 46 percent in the past five years, compared with a 13.7 per cent increase for Unilever.

Unilever, created in a 1930 merger between UK and Dutch companies, responded by eliminating its dual chairman structure and named Cescau the first sole CEO in 2005 to simplify decision making and speed response to consumer demand. He sold European frozen-food brands Iglo and Birds Eye last year.

The company had forecast sales growth in 2007 of 3 to 5 per cent, excluding acquisitions and currencies. P&G, which reports fourth-quarter earnings tomorrow, said May 1 that third- quarter sales increased 6 per cent on that basis.

``Unilever has been trading at a discount compared to its peers because it was trailing in underlying growth,'' said David van der Zande, who helps manage about $13 billion in assets at Theodoor Gilissen Bankiers in Amsterdam. ``With continuous revenue growth of around 5 per cent, that discount will disappear.''

The Anglo-Dutch company's shares trade at about 17 times expected earnings, compared with Procter & Gamble's price- earnings ratio of 21.

Unilever will sell assets with sales of 2 billion euros, including US laundry brands Wisk and All, Chief Financial Officer Rudy Markham said on a conference call today.

Cescau said in an interview that he didn't feel ``pressure'' to sell the brands, which could be bought by either buyout firms or other consumer-goods companies.

``It's a positive surprise Unilever wants to sell its US laundry business,'' said Robert Jan Vos, an analyst at Fortis in Amsterdam. ``The company is the number two, far behind market leader Procter & Gamble. They would be better off using the proceeds for their other businesses.''

The company has stepped up sales of its so-called pro-age range of Dove soaps, shampoos, deodorants and skin creams, which are being marketed to consumers over 50.

Unilever will accelerate a cost-saving plan aimed at saving 1.5 billion euros, Markham said. The company also raised prices to offset rising expenses for raw materials.

Total sales rose 3 per cent to 10.53 billion euros. The company gets more than a third of sales from Europe, where sales growth rose 1.7 per cent in the quarter, excluding the effect of currencies and acquisitions. The company began selling Knorr Vie health drinks in Germany and introduced Frusi frozen yogurt and fruit snacks across Europe.

Unilever yesterday named General Mills Inc's James Lawrence as chief financial officer, the second outsider to take a top management role this year. He'll replace Markham in September, the London- and Rotterdam-based company said after markets closed. Lawrence is CFO of Minneapolis-based General Mills, the second-largest US cereal maker.

It's the first management change since Michael Treschow, the former head of Electrolux AB, became Unilever's first outside chairman in May. He succeeded 35-year company veteran Antony Burgmans.

Like French rival Danone SA, Unilever has added brands aimed at improving consumers' health, including Flora spreads, which lower cholesterol, and Knorr Vie, shots of fruit and vegetable juice full of vitamins.