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Reckitt Benckiser shares drop as organic revenue growth misses expectations

Reckitt Benckiser reported a 2% increase in like-for-like revenue in the first quarter

A strong cold and flu season helped sales in North America

Reckitt Benckiser Group PLC (LON:RB.) said on Friday it is on track to return to full year revenue growth after a solid first quarter but shares fell as the results missed analysts' expectations. 

The consumer goods giant reported a 2% like-for-like increase in first quarter revenue to £3.1bn. Analysts were on average expecting like-for-like revenue growth of 2.6%, according to the company-supplied consensus. 

Shares dropped 4.3% to 5,534p in morning trading. 

Consumer goods companies have struggled to raise prices due to pressure from large retailers and tough competition from the likes of drug store chains and Amazon (NASDAQ:AMZN).

READ: Marmite-gate is over but did Tesco win the battle against Unilever?

Marmite owner Unilever plc (LON:ULVR) on Thursday revealed that it had increased prices by just 0.1% in the first quarter.

Mead Johnson Nutrition integration 

Including Mead Johnson Nutrition, the infant formula business Reckitt bought last June, revenue rose 3%.  

Mead Johnson delivered revenue growth of 6%, boosted by a strong performance in Greater China and the sell-in of the Enfamil NeuroPro infant formula in the US.

The health division posted a 1% increase in like-for-like revenue as growth in its Gaviscon, Mucinex, Strepsils and VMS brands offset a poor performance in its Scholl footwear.

Reckitt addresses poor performance in Scholl

"Scholl is stabilising but significantly below the prior year and has reduced the rest of like-for-like health performance by 200 basis points in the quarter," said chief executive Rakesh Kapoor.

"We are addressing our performance in Scholl through acceleration of our pipeline, penetration improvement programmes and streamlining our range."   

Like-for-like revenue in the hygiene home business achieved increased 4%, driven by Lysol in the US and the sell-in of new products under the Finish and Airwick brands.

In terms of geography, North America was the star performer with like-for-like revenue growth of 6%, thanks to a strong cold and flu season.

Russia and Middle East continued to be weighed down by challenging market conditions while poor sales of Scholl dragged on revenues in Europe.

Reckitt repeats full year guidance 

Reckitt said it is on track to reach its full year target for total revenue growth of 13% to 14% and an increase in like-for-like revenue of 2% to 3%. That follows flat revenues in the previous year.

However, the company warned that it may incur liabilities related to an investigation by the US Department of Justice and the US Federal Trade Commission into the RB Pharmaceuticals heroin addiction drug business before Reckitt demerged the business and renamed it Indivior

South Korea disinfectant deaths

Reckitt also apologised again for the deaths of 96 people in South Korea caused by its humidifier disinfectant. The group said 30 asthma victims have been announced by the Ministry of Environment.

"We continue to make both public and personal apologies to victims," Reckitt said.

"Since our fiscal year 2017 results publication, no material updates have occurred apart from further categorisation of applicants."

In 2016, the company removed the disinfectant made by its Korean Oxy unit in 2011 after a government investigation suggested a link between lung damage and humidifier disinfectants.

Focus returns to organic growth after calling off Pfizer bid

The results come after Reckitt pulled out of the race to buy Pfizer Inc’s (NYSE:PFE) consumer healthcare business in March because it did "not fit our acquisition criteria".

READ: Reckitt clears way for GSK to buy Pfizer's consumer healthcare unit after ending talks

"With the overhang of a Pfizer consumer health deal now removed, focus returns to RB’s organic growth story and Mead synergies," Liberum said, reiterating a 'buy' rating on the stock.

"We expect slow acceleration in organic sales growth in 2018 rising to 4% long-term.

"Management is committed to “moderate” EBIT margin uplift which drives sustainable high single-digit clean EPS growth (constant FX). RB’s split into Health and Hygiene Home divisions creates significant optionality."


Quick facts: Reckitt Benckiser

Price: 6874 GBX

Market: LSE
Market Cap: £48.87 billion

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