REFILE-UPDATE 2-Reckitt sees slow growth as southern Europe drags

Mon Jul 30, 2012 5:57am EDT

* Half-year earnings 111.1 pence vs 110 pence forecast

* South Europe shows some signs that decline is flattening

* Sticks to 2012 targets on underlying sales and margins

* First-half dividend 56 pence a share, up 2 percent

By David Jones

LONDON, July 30 (Reuters) - British consumer goods group Reckitt Benckiser cautioned its trading was tough in southern Europe due to depressed consumer demand and stiff competition and reported lagging half-year sales and earnings growth compared with some rivals.

Its sales fell across the southern European markets of Spain, Italy, Greece and Portugal as it battled for market share for products such as Finish dishwasher tablets and Vanish fabric cleaners.

"Southern Europe is significantly worse than other markets, and although there is a flattening of the decline, we see no near-term sign of recovery," Chief Executive Rakesh Kapoor told a conference call on Monday after the half-year results.

Kapoor, who took over last September after Bart Becht's shock decision to retire, reported half-year underlying sales rose 4 percent and earnings increased 2 percent, below growth levels of rival Unilever Plc/NV .

Reckitt maintained its 2012 targets to increase underlying sales by 3 to 4 percent and hold margins steady, in contrast to competitor Procter and Gamble which warned on profits, but the results were seen as dull and the shares dipped.

"It should remember that 4 percent growth is still lacklustre compared to that being reported by Unilever and Colgate," said analyst Andrew Wood at Bernstein Research.

Unilever reported half-year underlying sales rose 7 percent, and its Reckitt-comparable product sales were up 10 percent as it gained from its bigger exposure to fast growing emerging markets, while Colgate Palmolive's organic sales grew 8 percent in the second quarter. .

Reckitt shares slipped 1.4 percent to 3,491 pence by 0820 GMT to be the second biggest faller in the FTSE 100 index after gaining around 10 percent so far this year.

"We struggle to see a catalyst for share price out-performance and continue to prefer Unilever," said Panmure Gordon analyst Graham Jones.

Reckitt's Kapoor aims to focus on the group's fastest-growing health and hygiene brands such as Dettol, Strepsils and Durex and to move quicker into the major emerging markets of Brazil, Russia, India and China.

But analysts say Reckitt still has 55 percent of its revenue coming from mature European and North American markets, compared with Unilever at 45 percent, and a bigger relative exposure to the euro zone crisis, which has depressed southern European markets.

Reckitt, which also makes Nurofen, Cillit Bang and Air Wick, said half-year adjusted earnings rose 2 percent to 111.1 pence a share, beating a company-compiled forecast of 110 pence. It is paying a half-year dividend of 56 pence a share, up 2 percent.

Sales in its Europe and North American region fell 1 percent, while sales in its two groupings of emerging markets rose by 8 percent and 11 percent.

Reckitt's pharmaceuticals unit, which earns the vast majority of profits from its Suboxone heroin treatment, reported a 2 percent in profit and 6 percent gain in revenue.

In preparation for the introduction of generic rivals to Suboxone, the company is extending the product's life with a film version that dissolves on the tongue, which now has a 56 percent market share, up from 48 percent at the end of 2011.

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