UPDATE 2-Reckitt leans towards pharmaceuticals spin-off

Wed Apr 16, 2014 5:30am EDT

* First quarter sales up 4 pct vs analyst consensus 3.7 pct

* Health unit sales up 11 pct, hygiene only 2 pct

* Pharma spin-off emerging as "strong option" (Adds CFO quotes, background, details, byline, bullets)

By Martinne Geller

LONDON, April 16 (Reuters) - Consumer goods maker Reckitt Benckiser Group stood by its 2014 financial targets on Wednesday despite unusually weak sales of disinfectants and signalled it was leaning toward spinning off its declining pharmaceuticals business.

The British company said a strategic review of Reckitt Benckiser Pharmaceuticals (RBP) that it launched in October was progressing well and that a "capital markets solution is emerging as a strong option".

"We mean that RBP would be an independent, publicly listed company," said Chief Financial Officer Adrian Hennah, although he noted that all options including selling or keeping it remained on the table.

Reckitt gave no new details of its acquisition plans, dashing the hopes of some investors that it might signal an interest in a consumer health business that may be sold by Merck . Reckitt is seen as a potential bidder.

Reckitt is expanding its consumer health business, which already includes Nurofen tablets, Mucinex allergy medicine and Airborne supplements, as it targets ageing populations in Western countries and rising incomes in emerging markets.

Excluding the pharmaceutical business, which sells a drug to treat heroin addiction, Reckitt posted a slightly better than expected 4 percent rise in first-quarter like-for-like sales on a constant currency basis.

Analysts were expecting a 3.7 percent rise, according to a consensus forecast supplied by the company.

Sales in the health business rose 11 percent in the quarter, whereas Reckitt's other segments - hygiene and home - grew by only 2 percent and 1 percent, respectively.

Because this year's flu season was less severe than last year's, people bought less Lysol and Dettol disinfectants, the company said, resulting in "an unusually low growth rate ... and not one that we expect to see repeated very often".

Its health business, however, was boosted by the roll-out of new products including MegaRed supplements in Europe. The company said that even without the roll-outs, performance would have been "tremendous".

The pharmaceuticals business saw sales fall 11 percent as it continued to face competition from cheaper generic rivals.

Uncertainty about the outcome of the strategic review has preoccupied investors and weighed on Reckitt's shares. The stock was up 0.7 percent in morning trading on Wednesday.

Reckitt is aiming for revenue growth of 4 to 5 percent this year and an operating margin that is flat to moderately higher.

Fluctuations of the currencies in which it does business are expected to reduce reported sales by 9 percent. (Reporting by Martinne Geller in London; editing by Tom Pfeiffer)

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