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Reckitt Benckiser misses 2017 profit expectations, warns of tough trading

Shares down 5.6 per cent, in biggest European blue-chip fall

Reckitt: the maker of Finish, Dettol and Harpic forecast higher 2018 sales. Photograph: Stephen Hird/Reuters

Mon Feb 19 2018 - 18:48

The consumer-goods group Reckitt Benckiser missed 2017 profit expectations and said tough trading in developed markets and rising commodity costs were set to continue, hitting its shares.

The maker of Durex condoms, Dettol disinfectant and Vanish, Finish and Harpic household cleaners reported higher fourth-quarter sales on Monday, in line with expectations, and forecast an increase for this year as it looks to move on from a turbulent 2017.

It pointed to an improved performance at its recently acquired Mead Johnson baby-formula business and raised its forecast for cost savings from that deal to about $300 million, or €242 million, from the $250 million, or €202 million, announced at the time of the acquisition.

But 2017 earnings at the company, which has struggled with the weakest performance in its history, missed expectations and its profit margins declined, hurt by a tougher pricing environment in developed markets and increased commodity costs.

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Restructuring

It forecast both of those issues to continue in the near term. It declined to give a margin target for 2018 but said the year would be affected by the restructuring of its business into two units, which it completed in January, and the integration of Mead Johnson.

“Margins will be the debate this morning,” said Jefferies analysts.

Reckitt’s shares were down 5.6 per cent, the biggest fall by a European blue-chip stock. Investec analysts said the stock trades at 18.1 times expected 2018 earnings, a 4 per cent discount to those of its rival Unilever .

“A discount is warranted, in our view, until Reckitt can return the group’s performance to sustainable mid-single-digit organic sales growth,” they said.

Reckitt's chief executive, Rakesh Kapoor, declined to comment on the company's interest in the consumer health assets currently being sold by Pfizer and Merck.

Like-for-like sales rose 2 per cent in the fourth quarter, helped by a strong flu season. That was roughly in line with analysts’ average estimate for 2.1 per cent growth.

But the growth was driven more by volume than by pricing. Reckitt said pricing power tailed off over the past year, as large retail customers are under pressure from online competitors. It said the pressure was worse in its hygiene business than in health. – Reuters

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