Reckitt Benckiser Leaves 2010 Forecasts Unchanged; Shares Slump in London
Reckitt Benckiser Group Plc, the maker of Nurofen painkillers, fell the most in more than a year in London trading after leaving full-year forecasts unchanged and saying sales failed to grow in Europe, its largest market.
Laundry detergents, fabric conditioners and water softeners contributed to unchanged first-quarter sales in Europe, excluding currency swings and disposals, the Slough, England- based company said today. Net income rose 15 percent to 348 million pounds ($534 million), or 47.5 pence a share, in the three months ended March 31, meeting analysts’ estimates.
Reckitt fell as much as 6.4 percent in London trading, the steepest intraday decline since Feb. 5, 2009. The maker of Lysol and Cillit Bang cleaners faces increased competition from rivals such as Procter & Gamble Co. as well as a sluggish economy in Europe, which accounts for about 45 percent of sales.
“The issue is the European performance looks quite weak,” said Graham Jones, an analyst at Panmure Gordon & Co. who has a “hold” recommendation on the shares. “Reckitt normally comes out with a strong start and that establishes things for the year, so that’s what’s weighing on the shares.”
The stock was down 199 pence, or 5.4 percent, to 3,456 pence as of 2 p.m. local time. The decline was the steepest in the U.K. benchmark FTSE 100 Index.
Europe “continues to be a challenging environment,” Chief Executive Officer Bart Becht said on a conference call. “We’ve seen market growth rates of max 3 percent and clearly have weak spots in southern Europe and to some extent in eastern Europe.”
Becht also said “it was not a good flu season” in the U.S. and Europe, which hurt sales of products such as Nurofen, Mucinex cough medicine and Gaviscon heartburn medicine.
Reckitt said it is still forecasting revenue growth of more than 5 percent for the year and an increase of more than 10 percent in operating profit. The targets are stated at constant exchange rates and exclude the pharmaceuticals division.
“Merely reiterating full-year guidance has almost become a negative when investors have become so accustomed to Reckitt regularly increasing guidance,” Andrew Wood, an analyst at Bernstein Research, said in an e-mail. “The core performance can best be described as OK, which is not what investors have come to expect.” Wood has a “market-perform” rating.
Revenue from Subutex and Suboxone, prescription drugs which are used to treat heroin dependency, rose 30 percent in the quarter to 131 million pounds, the company said.
Reckitt expects sales at its pharmaceutical division to slump by as much as 80 percent in the U.S. when generics flood the market for Suboxone, which lost its exclusivity status last October. So far, no generic competitors have emerged.
“The continued absence of competition to Suboxone could force us to increase our forecasts for the pharma division,” Andreas Riemann, an analyst at Commerzbank AG in Frankfurt, said in a report before the release. Riemann has a ‘hold’ recommendation on the shares.
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