Shares in household and personal goods giant Reckitt Benckiser (RKT) crashed over 9% to a 12-month low of £56.00, making them the worst performers in the FTSE 100, after the company posted a disappointing first half trading update and warned rising costs would crimp full year margins.

Sales for the half ended in June were up 1.5% on a like for like and constant currency basis to £6.6 billion, but second quarter sales were down 1% on the same basis. The firm has targeted between zero and 2% growth in like for like sales for the year.

Moreover, first half operating profits of £1.42 billion were 9.6% lower on a constant currency basis as the firm continued to struggle with rising input costs, which ‘accelerated’ to around 8% or 9% in the second quarter.

MARGIN PRESSURE

Chief executive Laxman Narasimhan warned it would ‘take time to offset this headwind with productivity and pricing actions being implemented in the back half of the year and early next year’.

As a result, the expected margin benefit from the disposal of the Chinese infant milk formula business would be subsumed and full year operating margins would be between 22.7% and 23.2% or 40bp to 90bp below 2020’s reported level.

The firm stuck with its like for like sales target for the year but cautioned the third quarter would be ‘slower due to strong prior year comparators’.

While sales of disinfection brands like Dettol and Lysol may have structurally ‘rebased’, as the firm put it, growth is already starting to normalize, so much now hangs on the outcome of the flu season and sales of over-the-counter health remedies in the fourth quarter.

However, even here the firm faces stiff own-brand competition. ‘With consumers increasingly flocking to cheaper supermarket own-label products, the idea that the big brand owners are guaranteed sales success is no longer a given’ said Danni Hewson, financial analyst at AJ Bell.

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Issue Date: 27 Jul 2021