Growth guidance at the lower end of expectations hits Reckitt share price

Oliver Gill
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Activists Call For Boycotting Oxy Reckitt Benckiser Products
Activists have boycotted Reckitt products in South Korea (Source: Getty)

Reckitt Benckiser (Reckitt), the group behind some of Britain's best loved consumer brands, posted third quarter results today that led to its share price falling over three per cent in morning trading.

The numbers

Like-for-like revenue for the quarter grew by two per cent to £2.6bn, although actual revenue was up 17 per cent as a result of positive foreign exchange movements. This meant that like-for-like growth for the year was at four per cent, in line with company targets.

Its hygiene products divisional revenue grew by five per cent to just over £1bn but home brands felt the pinch with revenue dropping by two per cent in the quarter to £493m.

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Revenue from health products, while posting growth of only two per cent in the quarter, has grown by six per cent to £2.4bn in the first nine months of the year.

Why its interesting

Reckitt has dropped full-year like-for-like sales growth targets to four per cent, this is at the lower end of previous guidance and explains the decline in the share price of the FTSE 100 group.

19 October 2016 @ 9:15amReckitt Benckiser Group (RB.)

Although its developing markets, such as China and India, have performed well, the group has struggled in South Korea. Its business in the country has collapsed after multiple deaths were reported in connection with the development of humidifier steriliser products that were made by Reckitt in conjunction with other companies.

“The group’s image has been seriously damaged in Korea after it recently accepted a Reckitt product was responsible for spate of fatal lung problems.

"The inevitable slowdown there was enough to dent group sales. Having already set aside £300m for the issue, investors will hope that there are no further charges to come in relation to the tragic episode," said George Salmon, an equity analyst at Hargreaves Lansdown.

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While the Korean situation may have been expected Salmon added that "today’s results also confirm weaker trends in other areas".

What Reckitt Benckiser said

Chief executive Rakesh Kapoor said:

In an environment where market growth rates have softened, we continue to make good strategic progress in all of our powermarkets, particularly in India, and in China where we are driving strong development of our e-commerce channels.

We also had broad-based growth across our consumer health brands and continued improvement in our Hygiene portfolio. Our third quarter performance has been adversely impacted by the flagged issues in Korea, Russia and our Scholl innovation.

These challenges will impact the near term. We are targeting full year life-for-like net revenue growth of four per cent. We remain very confident that our medium and longer term strategic choices are right and will continue to drive shareholder returns.

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