Consumer goods giant Reckitt Beckiser (RB.) reports first quarter sales below market expectations due to a slow start in its Health business, although it kept its full year growth forecast intact to leave its shares trading sideways at £61.
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Like-for like (organic) sales for the group were up just 1% as growth in its Hygiene business was offset by flat revenues at its larger Health business due to an ‘unusually weak cold and flu season’ in the US and parts of Europe.
Despite the weak start to the year Reckitt maintained its 2019 target of 3% to 4% organic sales growth and flat operating margins.
OTC SALES UNDER THE WEATHER
The Health unit, which accounts for 61% of revenues, saw poor sales of over-the-counter (OTC) medicines and cold treatments during the first quarter but better sales of infant nutrition helped by new products.
OTC sales were down 9% on an organic basis in the quarter with Mucinex losing market share to private label rivals although overall sales have improved slightly this quarter.
Organic sales of infant nutrition rose 5% thanks to good demand in North America while sales in China continued to slow driven by lower birth rates in 2017 and 2018.
China was considered a major growth market by outgoing chief executive Rajesh Kapoor and was one of the main reasons for the $18bn acquisition of Mead Johnson Nutrition two years ago.
HYGIENE SALES CLEAN UP IN NEW MARKETS
Sales in the Hygiene Home division, which makes up 39% of revenues, grew by 3% on an organic basis thanks to strong demand for toilet-care, dish-washing and fabric-cleaning products in developing markets.
Online sales grew by 30% in the quarter with particular success in markets such as China and India.
Sales in the US were up a more pedestrian 2% with higher-value products like Finish Quantum Ultimate and Air Wick Essential Mist selling well.
However Europe remains a ‘tough trading environment’ with market share gains driven by promotional activities, in other words price-cutting.
PRICES UP, VOLUMES DOWN
Unlike big rival Procter & Gamble, which last week reported its best quarterly sales growth in eight years thanks to higher prices and higher volumes, Reckitt managed to push through a 4% increase in prices/value but saw volumes fall 4% in its Health business and 1% in its Hygiene business.
Getting the balance right between hiking prices and not losing customers isn’t easy but a number of other global fast-moving consumer goods (FMCG) companies have achieved just that in the first quarter as we discuss here.
Reckitt has assured investors that it will meet its 3% to 4% full year organic growth target with a big second half push but judging by the first quarter performance it has a long way to go to come good on its promise.
