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Reckitt Benckiser upgrades revenue as baby food acquisition pays off

The £12.2bn purchase of Mead Johnson Nutrition appears to delivering for the company
cillit bang
Taking baby steps? Reckitt appears to have found the recipe for success in the baby food market

Shares in household products giant Reckitt Benckiser (LON:RB.) surged after it upgraded its revenue forecast for the year thanks to a strong showing by its formula baby milk operation.

The maker of Durex condoms, Vanish detergent and Airwick air fresheners, reckons top-line growth will now be in the order of 14-15% this year, up from 13-14%.

Reckitt provided the update alongside its quarterly and half-yearly figures; numbers that showed sales had grown 30% at constant currencies to £6.1mln in the six months ended June.

Acquisition-driven 

The boost came from the acquisition of baby food business Mead Johnson Nutrition for £12.2bnln.

Synergies from the deal currently stand at £50mln a year – still some way short of the targeted £230mln.

The underlying performance was a little more pedestrian with like-for-like revenue growth of 3%.

Adjusted operating profit grew 29% at constant currencies to £1.29bn, while investors will receive a dividend of 70.5p, up 6% year-on-year.

Delving into the figures, City broker Liberum said earnings were ahead of forecast while margin attrition hadn’t been as severe as it had been predicting.

Stock up strongly 

The share rose 5% in the opening hour of the session with the results seen as a line in the sand after a string of disappointing updates.

“Reckitt's are delivering against targets, which should be well received after a few tough quarters,” said Danny Cox of investment group Hargreaves Lansdown.

Mead Johnson Nutrition, which took the group into the infant formula market in China and the USA is looking increasingly promising.

“The business had been struggling when RB acquired it, but sales are now moving apace, led by renewed strength in China.”

Cox said Reckitt “had a wobble” last year as it struggled to grapple with tougher consumer markets around the world and was hit by a cyber attack.

“The group now look to be recovering their poise,” he added.

“With earnings growth poised to accelerate and the stock offering a yield fast approaching 3% the prospects for RB are improving.”

 

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