Baby milk factory woes costs Reckitt £70m in lost sales

Household goods giant Reckitt Benckiser has suffered a £70 million sales hit after problems at its European baby formula factory left it unable to meet demand.

The Durex-to-Dettol group – which owns baby milk-maker Mead Johnson – saw like-for-like sales growth slow to 2% in the third quarter, with a 2% impact from the disruption at its manufacturing plant in the Netherlands.

Shares in the FTSE 100 firm fell 5% after the group revealed this left it nursing around £70 million in lost sales.

Reckitt said the issues were resolved and supply restored before the end of the quarter, but added that it expects “some residual impact” to continue into the new year, with some mothers having switched to other brands.

It also said some consumers will not be able to purchase a number of Mead Johnson Nutrition products while it restocks after the factory disruption.

Reckitt said the disruption affected sales to a number of markets outside North America during a period of unusually high market growth across parts of Asia and before new manufacturing facilities in Australia were up and running.

Analysts had been expecting group sales to rise by 4% in the three months to the end of September.

But despite the lower-than-forecast third quarter revenues of £3.1 billion, Reckitt said it remained on track for full-year like-for-like sales growth at the upper end of the expected 25 to 3% range.

Reckitt chief executive Rakesh Kapoor said: “The quarter was impacted by a temporary manufacturing disruption at our European IFCN (infant nutrition) plant.

“This affected sales to a number of markets, occurred during a period of unusually high market growth and before our new facilities in Australia were operational and able to diversify our 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.”

But he stressed that the group has “sufficient momentum and progress” to weather the manufacturing woes.

The figures showed that comparable sales in its baby formula division tumbled 6% in the third quarter to £659 million.

Reckitt has been expanding its baby formula division, buying up Mead Johnson in a mammoth 18 billion US dollar (£14.1 billion) deal last year.

But Reckitt also revealed in its latest update that it expects growth in baby formula sales to slow due to declining birth rates in China.

Steve Clayton, a fund manager at Hargreaves Lansdown, said the factory issue was “self-inflicted”.

He added: “This latest issue is clearly of Reckitt’s own making and the company will need to convince investors that they have fixed this and that there is nothing else on the horizon.”