February 18, 2019 / 10:49 AM / in 3 months

Reckitt shares rise after fourth-quarter sales top estimates

LONDON (Reuters) - British consumer goods group Reckitt Benckiser reported higher-than-expected sales growth on Monday, helped by improvements in both its health and home and hygiene businesses and lifting its shares to a two-month high.

FILE PHOTO: Rakesh Kapoor, CEO of Reckitt Benckiser, pictured at the company's headquarters in Slough, Britain, on Aug. 14, 2017. REUTERS/Martinne Geller/File Photo

The results boosted investor confidence that Reckitt, once seen as a pacemaker for growth in the packaged goods industry, is on a better path following three tough years marked by a safety scandal in South Korea, a failed product launch, a cyber attack and factory manufacturing glitches.

They come as Chief Executive Rakesh Kapoor, 60, prepares to retire. In eight years as CEO, Kapoor sought to turn Reckitt from a British cleaning products company to a global consumer health group through a series of acquisitions.

A signature achievement will be the still-unfinished separation of the business into two units, one focused on health and one on home and hygiene, under the same roof. The new structure is on track for completion in mid-2020.

The maker of Enfamil formula and Lysol cleaners ended 2018 on a positive note, achieving a 4 percent rise in like-for-like sales in the fourth quarter, topping analysts’ average estimate of 3.3 percent in a company-supplied consensus.

The stronger sales overshadowed a forecast for flat operating margins in 2019, which was anyway better than some investors had feared.

Reckitt shares were up 4.7 percent at 63.01 pounds by 1416 GMT, but still well below their 52-week high of 71.74 set in October. They had fallen amid concerns about the company’s performance and a potential pull-back of margins under whoever takes over from Kapoor later this year.

“Whoever ends up taking the reins from Rakesh Kapoor will of course still have their work cut out,” said analyst Fiona Cincotta at City Index, noting Reckitt faces a far more competitive environment as rivals GlaxoSmithKline and Pfizer are merging their consumer healthcare units.

Reckitt forecast 2019 like-for-like growth of between 3 and 4 percent, compared with 3 percent in 2018 and analysts’ estimate of 3.5 percent. The group plans to invest cost and efficiency savings into areas such as branding and new products. It is also planning to open a new research and development center in England this year.

Company executives said it was too early to discuss whether Reckitt would break up once the business units separate.

“We’re creating optionality,” Chief Financial Officer Adrian Hennah said.

Kapoor stressed that the separation was allowing each business to focus in a way that would breed success.

“If this was a tradeable company, it would be the best performing company in the next 25 years,” Kapoor said, citing the business of selling automatic dishwashing tablets in new markets such as China.

Reckitt said the search for Kapoor’s successor was under way. It did not identify internal candidates, though in an unusual move, the chief operating officer of its health division Aditya Sehgal and the CEO of its hygiene home business Rob de Groot presented on Monday alongside its CEO and CFO.

Like other consumer goods makers, Reckitt said it was increasing levels of inventory of finished goods and raw materials to protect against supply disruptions in the event of a no-deal Brexit.

Reporting by Martinne Geller; Editing by Kirsten Donovan and David Holmes

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