RECKITT Benckiser predicts it will increase profits by 16 per cent in the next year as rising sales in Brazil, India and East Asia drive the company forward despite tough UK and North American markets.
The Slough-based company posted a 19 per cent rise in profit to £426m for the three months to September. Revenue rose 11 per cent to £2.11bn – ahead of City forecasts.
The firm said it was hoping the the acquisition of Durex condom-maker SSL, which it completed this week, would help to drive sales up by six per cent.
Chief executive Bart Becht said the company, which makes products as wide-ranging as Cillit Bang, Dettol and Nurofen, will prosper as new products such as Airwick Aqua Mist take off.
Becht said: “The consumer environment is challenging, especially in western Europe and North America where there is little or no growth, but we are seeing good growth in developing markets.”
The developing markets, which account for nearly a quarter of Reckitt’s sales, saw third-quarter revenue up 18 per cent, led by strong growth of its Dettol soaps, Strepsil throat lozenges, Vanish stain removers and Mortein pest control aerosol sprays.
Reckitt said third-quarter underlying sales, excluding its pharmaceutical products, rose five per cent and operating profit 10 per cent, both in line with its targets, helped by the launch of products such as its Lysol/Dettol no-touch hand soap system.
Reckitt sets targets for its core business, excluding its drugs arm whose main revenue generator is heroin substitute Suboxone.
The pharmaceutical arm had a 33 per cent increase in currency adjusted revenue to £195m.
However, it lost its exclusive licence for Suboxone in October 2009 and expects generic competition to eventually emerge and hit the division’s healthy profit.
Analysts expected competition to intensify with Procter and Gamble’s Actilift stain remover being rolled out in Europe, while the US giant keeps up the pressure with its Fairy dishwash products and AmbiPur air freshener acquisition.
ANDREW WOOD SANFORD
ANALYST OF THE YEAR AWARD WINNER
RECKITT Benckiser's (RB’s) spectacular stock performance over the last decade (from below £6 in early 2000 to £36 today) has been predicated on very strong top-line growth (well above its markets) and equally strong margin growth (from 14 per cent in 2000 to 24 per cent today) driving excellent earnings growth, well above expectations and targets. This model has been somewhat lacking year-to-date in 2010 as tough markets in Europe and the US have held back growth to “only” in line with FY targets. The third quarter reporting yesterday saw more of a return to the RB of "old"...with top-line growth well ahead of the markets and profit growth ahead of expectations. Although the full-year 2010 targets were maintained, it is more likely that RB will beat those targets when it reports full-year results in February. We await more details of the SSL acquisition in the investor presentation…but overall the third quarter reporting confirms our thesis that RB remains a well-managed company despite the market pressures. However, at 16 times 2011 earning per share we see the stock as reasonably valued and continue to see few major catalysts to drive the stock forward from here. We believe that RB should over-deliver guidance, especially on EBIT/Net income.