Reckitt Benckiser cuts profits again, seeks to split into two business units
Eager to improve operational performance and build a resilient business model after a series of one-off setbacks, Reckitt Benckiser’s new chief executive promised to step up spending on its brands and improve performance after the British household goods maker cut its full-year sales forecast for a second time. Shares of the Durex condom and Dettol and Harpic maker fell up to 5.5% at one stage.
“We are not pleased with where we are and we must consistently deliver,” Laxman Narasimhan, who took over from long-time CEO Rakesh Kapoor in September, said on his first call with the investment community.
Mr Narasimhan particularly lamented the performance of the firm’s health business, its largest, where a failed product launch, the nearly $17bn (€15.2bn) acquisition of Mead Johnson, and a temporary baby milk factory shutdown in the Netherlands, have all caused significant disruption, some lasting to this day.
To fix these issues, he promised to invest more in Reckitt’s brands, hire more talent and improve relationships with retailers, distributors and trade partners to head off problems such as inventory destocking, which hit third-quarter results.
Mr Narasimhan said the company would pause any activities that might take attention away from improving operational performance, but said its ongoing plan, which seeks to split the group into two business units, would not be affected.
The new CEO said that he would provide a more detailed long-term strategy at the company’s annual results in February. Reckitt said it now expected like-for-like sales growth between flat and up 2% this year, down from a target of 2% to 3%. That was the second cut this year from an initial target of 3% to 4% growth.
Reported sales rose 5.3% in the third quarter to £3.29bn (€3.8bn), missing analysts’ forecast of £3.32bn, according to a company supplied consensus. Reckitt blamed a drop in retail orders for flu products such as Mucinex in the US and weak demand for its Enfamil baby products in China on the back of intense competition and declining birth rates.
“What has happened this year and it is abundantly clear is we were not close enough to [the thinking] of those retailers to get a good reading of what was going happen,” outgoing finance chief Adrian Hennah told analysts on a call.
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