LONDON (Reuters) - Reckitt Benckiser Group (RB.L) reported weaker than expected sales on Wednesday, blaming various issues including a “failed” new Scholl footcare product and becoming the third European consumer goods maker in a week to talk of tough conditions.
The British company joins Unilever (ULVR.L) and foods group Danone (DANO.PA) in posting disappointing third-quarter sales amid weakening consumer demand and slowing emerging markets that had more than compensated for growth stalling in European and North American markets.
But Reckitt, whose brands include Durex condoms, Vanish detergents and Mucinex cold medicine, also had its own special problems like disappointing sales for a new Scholl “Wet & Dry” footcare gadget and a boycott of its products in South Korea following a safety scandal involving a water sterilizing product.
It narrowed its full-year sales growth target on Wednesday after reporting its weakest quarterly like-for-like sales gain since 2011, and the poorest performance of Chief Executive Rakesh Kapoor’s five-year tenure.
“Was it a weak quarter? Absolutely,” Kapoor said of the consumer health business, where underlying growth slowed to 2 percent, from 8 percent in the first half. “I don’t like it. I hate it.”
Reckitt’s shares were down 2.6 percent at 1047 GMT (0647 EDT) at 7,133 pence. They had risen about 7 percent from 6,843 pence on the day before Britons voted to leave the European Union, as investors saw the fall in the pound as a boon for the UK-based company as most of its sales come from overseas.
“The wider debate in the market is whether investors are now prepared to abandon these previously winning compounders (growth companies) in pursuit of cyclical and financial companies,” Jamie Hooper, manager of the 243 million pounds AXA Framlington UK Growth Fund, said, suggesting those sectors might now be in line to benefit from rising inflation and government spending.
Reckitt said like-for-like sales, which strip out changes in currency exchange rates and acquisitions and disposals, rose 2 percent in the quarter. This was below analysts’ average forecast of 2.8 percent and down from growth in the second quarter of 4 percent.
The Korean issue reduced sales by 1.5 percent.
Underlying sales in its Europe and North America business, which accounts for 65 percent of revenue, were flat, with the company also mentioning weak economic conditions in Russia.
Including the impact from sterling’s weakness, overall third-quarter sales rose 17 percent to 2.6 billion pounds ($3.19 billion).
However some costs were also likely to be affected by the pound’s fall.
Chief Financial Officer Adrian Hennah said overall, the company’s raw material costs were going up, as hedges and existing stocks run out.
“There’s no doubt they will manifest as headwinds beginning in the second half and as we go into next year,” he said.
Reckitt did not give any details about its pricing strategy for Britain, or say whether it was raising prices like Unilever did last week, sparking a public row with Tesco.
It did say it expects full-year sales growth of 4 percent, having previously guided towards the “lower end” of a 4 to 5 percent forecast. It said it still expects “moderate” margin expansion in the second half of the year.
($1 = 0.8149 pounds)
Additional reporting by Simon Jessop in London; Editing by Greg Mahlich