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UPDATE 2-Reckitt emerges as laggard in consumer goods sector
April 21, 2017 / 6:58 AM / 8 months ago

UPDATE 2-Reckitt emerges as laggard in consumer goods sector

* Sees pick-up during year, keeps 3 pct growth goal

* Only company in sector to miss forecasts this week

* Company being reshaped by M&A (Adds CEO comments, stock activity, bullet points)

By Martinne Geller

LONDON, April 21 (Reuters) - British consumer goods maker Reckitt Benckiser failed to grow its underlying sales in the first three months of the year, blaming fallout from a South Korean safety scandal and a flop with a new Scholl product after figures fell short of estimates.

The like-for-like sales were the weakest in 15 years and shares of the maker of Durex condoms and Nurofen tablets fell 1.6 percent in London, while the FTSE 100 was flat.

Analysts had expected the first quarter to be weak across the consumer goods sector, due to economic uncertainties and the timing of Easter.

But of the seven large companies to report this week -- including Nestle, Unilever and Pernod Ricard -- Reckitt is the first to miss expectations, said RBC Capital Markets analyst James Edwardes Jones.

“Not a disastrous miss ... but nonetheless things don’t seem to be getting much easier for RB,” Jones said in a note.

Reckitt however said sales would improve as the year goes on and stood by its target for annual growth of 3 percent.

The disappointing sales will however increase the focus on dealmaking which has seen Reckitt concentrate more on consumer health and flag a possible sale of its small food business.

The $16.6 billion purchase of baby formula maker Mead Johnson, announced in February, is progressing well, Reckitt said, and should be finalised by the end of September.

Reckitt said it would explore options for its food business before reaching any decision. It had said this month that it was reviewing a business it called “non-core” as it looks to pay down debt from Mead Johnson.

“TALE OF TWO HALVES”

Excluding the impact of currency fluctuations, acquisitions and disposals, Reckitt said first-quarter sales were flat, as increases in developing markets and in the hygiene business were not enough to offset declines in Europe and in the home products business.

Sales in Germany and Italy, for example, were lower than the year-ago period, when it launched the new Scholl “Wet & Dry Express pedi” foot file for hard skin, which failed to catch on.

Analysts on average were expecting growth of 1 percent, according to a consensus compiled by the company.

Aside from the failed foot file, which Chief Executive Rakesh Kapoor said was too expensive and too innovative, its business has suffered a collapse in South Korea.

Retailers have boycotted its products due to how it handled a safety scandal in which the government said 92 people were believed to have died from lung injuries related to humidifier sterilizers.

CEO Kapoor sought to convince analysts that there was nothing structural in the market or in the company’s health business that should cause future weakness.

Kapoor repeated what he said in February, that this year 2017 would be “a tale of two halves” as the impacts of issues such as South Korea and India’s demonetisation ease.

“We just have to go through this, knowing our underlying business is performing well,” he said.

Reckitt also said it was in “active discussions” with the U.S. Department of Justice regarding litigation and investigations into the pharmaceutical business it spun off into Indivior in 2014. It said it could not comment on any potential outcome or related costs. ($1 = 0.7806 pounds)

Reporting by Martinne Geller; Editing by Keith Weir

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