Unilever, Nestle woo investors with cash amid pricing squeeze
UNILEVER PLANS A $7.4B SHARE BUY-BACK, FOLLOWING NESTLE’S BID FOR $21B OF ITS STOCK
Unilever, Nestle SA and other consumer giants are wooing investors with cash rewards as they lose the pricing power that’s historically driven sales growth and predators circle the industry.
Unilever, the maker of Hellmann’s mayonnaise and Ben & Jerry’s ice cream, said yesterday that it plans a €6 billion (Dh27.3 billion, $7.4 billion) share buy-back, while distiller Pernod Ricard SA will boost its dividend. In adopting more shareholder-friendly stances, they’re following Nestle, which is buying back as much as $21 billion of its stock.
The moves come as Nestle, Unilever and rival Procter & Gamble Co find it ever harder to raise prices, with consumers seeking online bargains from Amazon.com. and doing more shopping at discount grocers.
Revamping portfolios
All three of the consumer giants are revamping their portfolios, with Nestle and Unilever snapping up niche makers of healthier foods and the US company yesterday agreeing to buy the consumer health business of Germany’s Merck.
By boosting returns, the companies are trying to keep shareholders loyal as activist investors and potential acquirers loom. Unilever last year fended off an unwanted takeover bid from Kraft Heinz Co, while Dan Loeb’s hedge fund bought a stake in Nestle and billionaire Nelson Peltz gained a seat on P&G’s board after criticising the company’s growth strategy.
Despite the share buy-back, Unilever shares fell as much as 2.6 per cent in Amsterdam, while Nestle was up 0.4 per cent in Zurich.
“Chronically weak pricing” from Unilever and Nestle will “play to the market’s fears,” Jefferies analyst Martin Deboo said in a note.
Unilever was able to squeeze out gains of only 0.1 per cent in underlying pricing in the first quarter, down from a 0.7 per cent increase in the previous three months. Nestle’s quarterly increase of 0.2 per cent was barely better.
For both companies, pricing lagged behind sales growth. At the Vevey, Switzerland-based maker of Purina Dog Chow and KitKat chocolate, first-quarter sales rose 2.8 per cent on an organic basis, above analyst expectations for 2.5 per cent. Unilever’s sales rose 3.4 per cent on an underlying basis, matching a company-compiled estimate.
Unilever expects pricing pressure to ease somewhat in the second half, Chief Financial Officer Graeme Pitkethly said by phone.