Reckitt Benckiser cuts sales outlook amid China baby formula hit
Household goods giant Reckitt Benckiser has slashed its full-year sales outlook amid a slowdown in demand for baby formula in China.
In outgoing boss Rakesh Kapoor’s final set of results, the Vanish-to-Durex firm said it is now targeting 2019 like-for-like net revenue growth of 2% to 3%, down from 3% to 4% previously.
Reckitt said this was to “reflect the slow start to the year” despite an improvement in revenues expected over the last six months of 2019.
The gloomier sales outlook came as it reported pre-tax profits of £1.26 billion for the six months to June 30, up from £1.1 billion a year earlier.
Shares in Reckitt fell 3% after its half-year figures.
Chief executive Rakesh Kapoor admitted a 1% rise in like-for-like revenues in the first half was “somewhat below our expectations” after a disappointing second-quarter performance for its consumer health division.
Its health division saw sales fall 1% on a constant currency basis, which offset a 3% rise in the hygiene home arm to leave overall group second-quarter revenues flat on a like-for-like basis.
The group has been hit by a slowdown in demand for baby formula in China – its biggest market – as birth rates have slowed over the past two years.
Its infant formula business – which took over Mead Johnson Nutrition in 2017 and is part of its health business – saw sales remain flat in the second quarter.
The group’s baby formula business has also been knocked by supply problems at its European baby formula factory, which left it unable to meet demand at the end of last year, although it said supply has now returned to more normal levels.
Mr Kapoor said: “On our journey to be a world leader in consumer health, we have work to do to deliver consistent financial performance.
“However, we believe that much of this is behind us and strong plans are in place to restore growth.”
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said the results showed there is much work to do for incoming Reckitt boss Laxman Narasimhan.
She said: “A smooth set of half-year results would have been the ideal welcoming gift.
“Unfortunately for the new boss, that wasn’t to be the case.”
She added: “Looking to the future instead, there will be those wondering if plans to split off the business into its two separate divisions are likely to come to fruition any time soon.
“We expect the new CEO will want to have his feet under the table for a little while before making any decisions on that front.”
Mr Kapoor revealed plans to hand over the reins at the company in January after eight years.
His successor, Mr Narasimhan, joins the company from PepsiCo, where he was global chief commercial officer.
He will take over as group chief executive officer, while also leading the firm’s health business unit, from September 1.
He will be tasked with delivering a strong performance, particularly in the firm’s health business arm, and driving the company’s reorganisation programme dubbed RB2.0, which has seen it separate its health and hygiene units.