July 6, 2017 / 10:17 AM / in 3 months

Reckitt Benckiser cuts sales forecast after cyber attack

LONDON (Reuters) - British consumer goods maker Reckitt Benckiser (RB.L) trimmed its sales forecasts on Thursday, becoming one of the first companies to put a cost on a global cyber attack that disrupted its manufacturing and distribution.

Several major companies, along with Russia’s biggest oil firm and Ukrainian banks, were hit by a virus on June 27 that crippled computers, disrupting ports from Mumbai to Los Angeles and halting production at factories.

Reckitt Benckiser, which makes Dettol and Lysol disinfectants, Nurofen tablets and Durex condoms, said it estimated like-for-like revenue in the second quarter would fall 2 percent from a year earlier because of the attack, which hit three days before the quarter ended.

The virus hit output at many of the company’s more than 60 factories and hurt a global supply chain by affecting systems that manage orders, billing and shipping. Excluding that impact, and tax changes in India that hurt sales to a lesser extent, second-quarter sales would have been flat, the company said.

Reckitt’s shares fell as much as 3.2 percent on Thursday to their lowest since May 19. They closed 1.5 percent lower.

The cyber blindside came at a bad time for Reckitt Benckiser after its weakest performance in 15 years in the first quarter, when a collapse of its business in South Korea and a failed Scholl product innovation left sales unchanged..

Reckitt Benckiser has described 2017 as a “tale of two halves”, saying the second half would improve as comparisons with the year-earlier period get easier.

But it said on Thursday that like-for-like annual sales would now only increase 2 percent, instead of 3 percent.

The company did not provide more financial details, but based on last year’s sales figures, a 1 percent cut to the full-year forecast would be worth about 100 million pounds.

Investec analysts cut their full-year estimates for sales by 111 million pounds and earnings per share by 1.5 percent, citing disruption to production, order handling and logistics and pressure on margins from the need to upgrade systems and recover data.

They said the new forecast implied a need to deliver 4 to 5 percent growth in the core business in the second half of the year, “which we think will be tough”.

Another analyst, who declined to be identified, said Reckitt was likely already on track to miss its full-year target, and described the cyber attack as “a handy way to adjust expectations in a way that puts the blame on ‘one-ff’ factors.”

FILE PHOTO - Products made by Reckitt Benckiser stand on a shelf in a store in Brighton southern England, July 21, 2010. REUTERS/Luke MacGregor/File Photo

Reckitt has a reputation for acquiring businesses and boosting sales by launching new products. But several sluggish quarters and last month’s acquisition of baby formula maker Mead Johnson have raised questions about its strategy.

“We remain negative on the acquisition of Mead Johnson from a strategic, operational and financial point of view whereas organically we see signs of innovation fatigue meaning that there isn’t anything obvious to offset the slowdown of the failed Scholl Express Pedi innovation,” said analysts at RBC, affirming their “underperform” rating.

Prior to the takeover, Mead Johnson’s shares had fallen by a third over two years, as it lost market share in China due to increased competition and changing consumer habits.

AROUND THE WORLD IN 45 MINUTES

Security experts say the NotPetya virus hit a popular accounting software used in Ukraine, which is likely where multinationals, including A.P. Moeller Maersk (MAERSKb.CO), Mondelez International (MDLZ.O) and Reckitt were first infected before it spread globally through their networks.

Maersk on Thursday said container shipments would be back to normal by early next week. It did not detail any financial impact.

Reckitt could not confirm the virus’s starting point - only that it spread around the world in just 45 minutes. A company spokeswoman said there was no evidence to suggest Reckitt had any particular vulnerability in its system.

Reckitt employees were able to conduct some business through phones and other personal devices during the disruption, but not manufacturing.

Reckitt said some revenue lost would be made up in the current third quarter, which runs through September.

“However, the continued production difficulties in some factories mean that we also expect to lose some further revenue permanently,” it said.

The spokeswoman said she anticipated that all factories would be running at some level by the end of the week.

Reckitt plans to do a full study of its IT processes, but did not detail any impact to profits. It said generally that its operating margin continued to make satisfactory progress.

The virus did not hurt Mead Johnson, which Reckitt acquired for nearly $17 billion, its biggest deal ever.

Additional reporting by Eric Auchard; Editing by Jane Merriman and Mark Potter

Our Standards:The Thomson Reuters Trust Principles.
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