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Reckitt Benckiser cuts targets as new CEO takes stock

For 2019, Reckitt's net revenue growth target has been reduced to 0-2% on a like-for-like basis, having been cut to 2-3% in July from previous 3-4% guidance

Reckitt Benckiser - Vanish bottles
Reckitt owns dozens of household brands, including Vanish

Reckitt Benckiser Group PLC (LON:RB.) cut its sales and profit guidance again as it blamed cautious US retailers and a difficult market for infant food in China for its poor third-quarter numbers.

New chief executive Laxman Narasimhan, recently poached from Pepsi, echoed his predecessor when he said the FTSE 100-listed firm's performance was "disappointing" and scaled back the full-year outlook just three months after the last downgrade from the Durex and Dettol maker. 

Reckitt's third-quarter sales were £3.3bn, up 5.3% on the same period last year, or 1.6% on a like-for-like (LFL) basis, which was a better performance than the second quarter but means nine-month revenues are just 0.9% higher on a LFL basis. 

While the Hygiene & Home arm continued on an upward trajectory with growth of 4.5%, LFL sales at the Health arm declined 0.3%, vastly undershooting analyst expectations of 3.7% growth.

Outlook cloudier

For the whole of 2019, Narasimhan said the company has cut its expected LFL sale growth to 0-2%, following a reduction to 2-3% in July from previous 3-4% guidance. 

He said: “This performance is a reflection of an extended period of significant change and disruption in the company. I am prioritising execution and operational performance as a matter of urgency.

“I have made it clear within the organisation that any activities that detract focus and attention from improving our operational performance, be paused.”

The CEO said Reckitt's profit margins would see a “modest” decline this year, versus “flat” previously, due to continued investment in the brands but he was confident that “the issues I have seen facing the business are clear and addressable”.

He added the focus will be on “restoring performance credibility, bringing simplification and focus, driving commercial execution, unleashing our people and delivering a strong financial model”. 

The market has been keenly awaiting Narasimhan's first presentation but his report on a potential turnaround in the company's strategy is not anticipated until February.

Worse than expected but perhaps not a surprise

Reckitt shares fell 5% to 5,577p in early trading on Tuesday.

Morgan Stanley said: “Whilst we expected a weak quarter the challenges in the Health business are significantly worse than we expected.”

But the bank noted that this is disappointing but follows a recent trend for the company to miss the analyst consensus 13 out of the past 14 quarters in a row.

"The problems came from further execution issues within the Health business, which continues to struggle," analysts wrote in a note to clients, noting that the major weakness came from retailer purchasing and inventory issues with flu-related products such as Mucinex.

Quick facts: Reckitt Benckiser

Price: 7072 GBX

LSE:RB.
Market: LSE
Market Cap: £50.3 billion
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