Shares in leading consumer and household goods-maker Reckitt Benckiser (RB.) drop 5% this morning as it delivers a disappointing third-quarter sales update.

Group like-for-like sales were up just 2% in the three months to September, lagging estimates of a 4% increase due to production problems in the baby-formula business.

Production of infant formula was disrupted at the firm’s main European plant right in the middle of a key selling period which meant that sales for the quarter were £70m lower than budgeted and like-for-like revenue was down 6%.

This reverses the positive surprise of the first half when sales grew ahead of the company’s expectations leading it to upgrade its full-year revenue target for the whole group.

The rest of the Health unit, which includes well-known brands like Dettol, Durex, Lemsip and Nurofen, posted a 4% increase in like-for-like sales but the problems at the formula business meant overall like-for-likes in Health (60% of sales) were only flat.

HOUSEHOLD PRODUCTS OUTPERFORMING

On a more positive note the Hygiene Home unit which includes products such as Air Wick, Finish and Vanish and accounts for around 40% of sales, delivered a 4% like-for-like increase.

Growth was better than the industry average of 2% thanks to improving sales in the US and developing markets like Brazil and India.

The company puts this down to market share gains, ie higher volumes, but it admits that pushing through price rises is still tricky even though that most of its products are market-leading brands. Pricing power is a significant factor in a company's ability to generate shareholder value as we discuss in this article.

Despite a tough consumer environment and the set-back in the formula unit however, Reckitt is keeping its full-year target of 14-15% total revenue growth and 2-3% like-for-like growth which should be enough to stop the shares falling further.


Issue Date: 30 Oct 2018