Health, hygiene and home products powerhouse Reckitt Benckiser (RB.) rises 53p (1.1%) to £48.80 as in-line full-year figures and 4% fourth quarter sales growth reassures. Yet the £35 billion cap also cautions of slowing growth in key emerging markets and sets a cautious 2014 sales growth target accordingly.


Web chart - Reckitt - Feb 2014

Chief executive officer Rakesh Kapoor warns that 'market conditions are more challenging now than at the beginning of last year, particularly in some emerging markets' and sets a conservative 4-5% revenue growth target for 2014. Despite delivering 'very strong' results in China and India, Slough-headquartered Reckitt flags a fourth quarter slowdown in a number of emerging markets including Russia, India, Brazil and Thailand.


This is worrying for investors as developing economies, alongside the area of consumer health, are a key future growth driver for the group. Fourth quarter like-for-like sales rose 4% in line with expectations, with Europe & North America sales up 2% despite tough comparisons from a strong cough and cold season last year. LAPAC (Latin America and Asia Pacific) delivered 9% growth, yet RUMEA (Russia, Middle East and Africa) was especially weak, with growth of 3% falling short of expectations.


Reckitt is one of a number of listed consumer goods giants whose sales and earnings are being hit by slowing growth in developing economies and emerging markets currency weakness. Pampers maker Procter & Gamble (PG:NYSE) has cut its sales and earnings outlook due to devaluation of currencies in various emerging markets. Elsewhere, the likes of Dove body lotion-to-Hellmann's mayonnaise maker Unilever (ULVR), Johnnie Walker whisky giant Diageo (DGE) and Grolsch brewer SABMiller (SAB) have all come under selling pressure as investor fret over their exposure to the impact of economic uncertainty and currency depreciation on consumer demand.


FTSE 100 constituent Reckitt's annual numbers are nevertheless robust, showing operating profits (stripping out pharmaceutical business RBP, a provider of opioid addiction products which is up for sale) up 7% to almost £2.2 billion and earnings per share up 2% to 269.8p. Gross margins gain 150 basis points to 59.4%, demonstrating Reckitt's pricing power derived from high quality health and hygiene brands ranging from Mucinex and Durex to Dettol and Strepsils.


Cash-generative and with a strong balance sheet, Reckitt surprises by cutting the final dividend from 78p to 77p, for 2% total dividend growth in the year to 137p. Panmure Gordon, with a 'hold' rating on the stock, believes this could reflect concerns that once the pharma arm is sold, 'dividend cover would look low, or it could reflect RB saving its cash for a rumoured US$9 billion bid for Merck's consumer business.'

Issue Date: 12 Feb 2014