Household products giant Reckitt Benckiser (LON:RB.) reported softer than expected underlying revenue growth in its third quarter after being hit by manufacturing disruption at one of its European baby formula factories, which dented sales and sent its shares tumbling.
The maker of Durex condoms, Vanish detergent and Airwick air fresheners, on Tuesday said its like-for-like sales had grown 2% in the quarter thanks to solid performances at its health and hygiene home divisions, which helped it partly absorb the hit caused by the production issue.
Analysts at UBS had expected Reckitt to report +3.7% organic sales growth in the quarter.
Reckitt said the temporary manufacturing disruption at its European Infant Formula and Child Nutrition (IFCN) plant affected sales to a number of markets. Total growth was negatively impacted by 2% - or £70mln.
The firm added that the problem occurred during a period of unusually high market growth and before its new facilities in Australia were operational and able to diversify its supply chain.
“The disruption was resolved and supply restored before the end of the quarter, although we do expect some residual impact in Q4 and into 2019,” CEO Rakesh Kapoor said in a statement.
“We have sufficient momentum and progress in our business to absorb this temporary manufacturing disruption. We, therefore, reiterate our 2018 target of +14-15% total net revenue growth at constant rates,” he continued, adding that this implies like-for-like revenue growth at the upper end of 2%-3%.
Reckitt said its health and hygiene home businesses each delivered like-for-like growth of 4% in the quarter, against a backdrop of mixed market conditions, which it said demonstrated the strength of its brands, innovation success and benefits of its RB 2.0 programme.
“Although encouraging, we remain focused on further improving our growth trajectory,” said Kapoor.
Reckitt got into the infant nutrition market last year through its US$17 billion acquisition of Mead Johnson (MJN).
Reckitt said its IFCN business delivered a strong performance in North America, with the launch of Enfamil NeuroPro, and progress in new channels. It added that it remains firmly on track to deliver the medium-term targets it set at the time of its MJN acquisition.
"Reckitt's difficulties in the third quarter look self-inflicted," analysts at Hargreaves Lansdown said in a note to clients.
"Customer demand is solid enough, with strong growth for MJN in most of its end markets. But the group started with low levels of inventory so when things went wrong in the manufacturing plant, there was limited ability to keep supplying customers. Reckitt has new manufacturing facilities coming on stream in Australia, which should make them more resilient in future," they continued, adding that previously loyal customers may well have switched brands due to the shortfall during the period.
Shares in Reckitt were 5.3% down at 6,260p in early trade.
- updates intro, adds analyst comment and share price -