logo-loader

Reckitt Benckiser shares fall as it confirms cut to full year revenue forecast

Last updated: 13:26 24 Jul 2017 BST, First published: 08:26 24 Jul 2017 BST

Reckitt
Reckitt Benkiser's operations were hit by a cyber attack on 27 June

Reckitt Benkiser Group (LON:RB.) shares dropped after confirming it was lowering its full year revenue guidance and reporting a 2% decline in second quarter like-for-like sales.

Shares fell 3.04% to 7,686p in afternoon trading. 

The consumer goods giant said it was reducing its annual net revenue target to 2% from 3% after a cyber-attack on 27 June disrupted operations.

Reckitt had already warned earlier this month that the so-called ‘Petya’ ransomware attack could cost an estimated £100m in full year revenue. 

The ransomware, which blocked access to computers and demanded US$300 in Bitcoin to release them, hit a number of businesses worldwide including Oreo cookie manufacturer Mondelez International, the shipping group Maersk and the advertising agency WPP.

Reckitt's revenues were also affected by a continued weak performance in its Scholl footwear brand, the introduction of a goods and services tax in India and the aftermath of a South Korean investigation into a humidifier sanitiser sold by its Korean Oxy unit between 2001 and 2011. The active ingredient in one of humidifier sanitiser products was linked to nearly 100 deaths in Korea.

READ: Reckitt Benckiser shares rise as it sells its food business to McCormick & Company for US$4.2bn

Reckitt books provision to cover US probe into Indivior

The company also revealed it had taken a £318mln provision to cover the costs of an ongoing investigation by the US Department of Justice into the pharmaceuticals business it spun off in 2014. The business, which was renamed Indivior after a demerger, has been accused of trying to keep generic versions of its Suboxone drug off the market and keeping prices artificially high. The drug is used to fight addiction to prescription painkillers and heroin.

Reckitt, which owns the Vanish stain remover and Nurofen painkillers, still saw adjusted profits in the second quarter rise 16% to £1.19bn when measured at actual exchange rates or 1% at constant exchange rates.

The company said the integration of Mead Johnson was progressing well after completing the acquisition of the maker of infant formula last month. The company also agreed to sell its food business, which includes French’s mustard and Frank’s Red Hot, to McCormick for US$4.2bn earlier this month. Proceeds of the sale will be used to reduce debt.

“The strategic transformation enabled by the recent acquisition of Mead Johnson Nutrition and disposal of Food will position RB well to deliver superior shareholder returns for years to come," said Rakesh Kapoor, Reckitt’s chief executive.

Reckitt lifts interim dividend 

The group raised its interim dividend by 14% to 66.6p. 

Russ Mould, investment director at AJ Bell, said the increase in the dividend is "reassuring" and "bulls of thee stocks will point to this and the ongoing work to reshape the portfolio as reasons to own shares in Reckitt for the long term".

“Bears will growl about the full valuation, which means the stock looks like an expensive defensive and one where all three divisions are currently showing a drop in sales on a like-for-like basis," it said.

"A multiple of 23 times forward earnings for 2017 is a huge premium to the UK market and the 2.2% forecast dividend yield is a big discount."

Steve Clayton, manager of the Hargreaves Lansdown Select funds, said despite product liability issues in Korea, GST in India, a US investigation and a cyber-attack, the group remains in strong shape.

Margins rose 30 basis points to 23.7% and the integration of Mead Johnson is expected to produce more benefits, Clayton said. 

"Trading may be tough currently, but the dividend increase speaks volumes about how the group sees its future. With the benefits of MJN yet to be felt and debts falling rapidly, the group’s future prospects look in good shape.”

Liberum repeats 'buy' rating 

Liberum reiterated a 'buy' rating and target price of 8,150p, saying the long-term investment case remains in-tact as off-factor factors drop out and Reckitt applies is "robust business model" to Mead Johnson.  The Mead Johnson deal will increase Reckitt's focus on health and hygeine, which will represent 80% of group revenue after full integration of the business, Liberum added.

"The impact from the HS scandal in South Korea will drop out of operating results from the third quarter removing a key drag from like-for-like growth," it said.

"We also expect a lesser impact from the failed Scholl innovation to further improve momentum."

FTSE rises ahead of Easter weekend, JD Sport gains on upbeat outlook -...

The FTSE 100 gained on the final morning of this shortened Easter trading week. Festive cheer was limited though, as Thames Water confirmed shareholders would not provide it with a £500 million rescue package, prompting speculation over the London supplier’s future. On a more positive...

1 hour, 42 minutes ago