Reckitt Benckiser Rises to Record as Sales Beat Estimates
Reckitt Benckiser Group Plc (RB/) rose to a record in London trading after the maker of Nurofen posted revenue that beat estimates, defying a slowdown that has hurt competitors, boosted by increased sales of health-related products and a turnaround in developed markets.
The shares gained as much as 6.2 percent to 3,858 pence, the highest price since the company was created by a merger in 1999. They were up 5.1 percent as of 2:34 p.m., extending the stock’s gain for the year to about 20 percent.
Non-pharmaceutical sales rose 5 percent on a comparable basis, the Slough, England-based company said today. The median estimate of 10 analysts surveyed by Bloomberg was for a 4 percent gain. The maker of Cillit Bang cleaners and Veet hair- removal creams also said it expects market growth this year to be at the top end of its forecast range and maintained a forecast that its sales will rise at a faster pace.
“RB’s like-for-like growth is strong and goes against the grain of most staple stocks, which are seeing a sales slowdown,” Harold Thompson, an analyst at Deutsche Bank, said in a note to clients.
Chief Executive Officer Rakesh Kapoor has introduced new products like Durex Performax Intense condoms and boosted marketing spending to stem declines in slumping European markets while lifting sales in emerging regions such as Russia. Consumer-products makers including Nestle SA (NESN) and SABMiller Plc (SAB) last week reported sales growth in developing countries that missed estimates, raising concern of a slowdown in regions that the companies are relying on.
Total sales declined 1 percent in the third quarter to 2.42 billion pounds ($3.87 billion). At constant exchange rates, revenue increased 4 percent, the company said.
Reckitt Benckiser maintained a forecast for full-year sales growth in its non-pharmaceuticals businesses to be 2 percentage points ahead of the market. The growth of the market will be at the top end of the range of 1 percent to 2 percent that the company has seen this year, the company said.
“We are doing better in a number of categories, and health-care has made a difference recently after being a drag in the first half of the year,” Kapoor said in a phone interview. Sales of health-related brands such as Durex, Strepsils cold remedies and Gaviscon heartburn relief rose 7 percent, above the estimates of analysts such as Liberum Research’s Pablo Zuanic.
The company also kept its forecast for unchanged operating profit margins for the year.
“We long disagreed with management’s 1-2 percent market growth estimate, so we are somewhat pleased to see management slightly raising its estimate, even though we still find this new estimate to be prudent,” Andrew Wood, an analyst at Sanford C. Bernstein, said in a note to clients today.
Like-for-like revenue rose 2 percent in Europe and North America, which make up more than half of total revenue and are reported as one unit. That’s an improvement compared with a 1 percent drop for the first six months of the year. Danone (BN), the world’s biggest yogurt maker, last week said declines in Spain and Greece caused the weakest growth in sales of dairy products in more than three years.
“Europe was surprising to me,” Martin Deboo, an analyst at Investec, said in an interview. “Generally, the mood music is that Europe in particular is not changing. Yet Reckitt is exceeding expectations and moving into growth.”
Kapoor said that conditions in southern Europe have “gone from worse to bad,” and increased marketing spending has “probably started to bear fruit.” To lift sales, Reckitt Benckiser is investing an additional 100 million pounds in main brands such as Harpic cleaners, and shifting more of its marketing spending from television ads to digital media and consumer education campaigns.
Revenue increased 11 percent in Latin America and Asia, fueled by brands such as Durex condoms, Dettol cleaners and Finish dishwashing detergent. Sales rose 7 percent in Russia, the Middle East and Africa, helped by consumers buying more Durex, Veet and Gaviscon.
Revenue at the pharmaceuticals division, which Reckitt Benckiser considers a “non-core” activity, rose 6 percent. The company said last month it will cease production of the Suboxone opioid-dependency drug in tablet form within six months as it weans patients onto a film-strip version that’s less likely to be taken accidentally by children.
Reckitt Benckiser said the film version of Suboxone that dissolves under the tongue has now captured a 60 percent volume share in the U.S., up from 48 percent at the end of 2011.
“The number of patients on the tablet is shrinking,” Kapoor said. “Six months from now, a vast percentage would have been on the film anyway.”
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