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Reckitt Benckiser Sees Pricing Squeeze After Worst Year Ever

Updated on
  • Company expects comparable sales to rise 2% to 3% this year
  • Shares fall as Kapoor says consumer-goods deflation to persist
CEO Rakesh Kapoor tells Bloomberg he’s upbeat about 2018.

After a cyberattack and a botched product launch spoiled Reckitt Benckiser Group Plc’s 2017, a pricing squeeze threatens to make this year almost as tough.

The Slough, England-based maker of Durex condoms and Nurofen painkillers said comparable sales will rise by only 2 percent to 3 percent in 2018, and profitability will be curtailed by deflationary conditions in the consumer-goods business. That followed the worst year in the company’s history, during which sales stagnated.

The stock fell as much as 6.6 percent in London, the biggest intraday decline since 2011.

“I know we’ve had a tough 12 months from a share-price point of view,” Chief Executive Officer Rakesh Kapoor said in an interview with Bloomberg TV. “As I look forward to 2018, I think it’s going to be a better year for RB and that’s how we are guiding the market.”

Reckitt Benckiser said it expects higher commodity costs and downward pressure on prices of its products to continue in the near term -- a problem faced by companies across the consumer-goods landscape, from food seller Nestle SA to household and personal-care giant Procter & Gamble Co. That’s making it harder for Reckitt Benckiser to recover from last year’s cyberattack and a failed product launch in the Scholl foot-care business.

Unilever, the Anglo-Dutch owner of Dove soap and Hellmann’s mayonnaise, said underlying prices rose only 0.7 percent in the fourth quarter, held back by deflationary pressure in the U.S., emerging markets and European countries where discount grocers are making gains. Nestle posted the weakest annual sales growth in more than 20 years.

Strepsils, Mucinex

In an effort to sharpen Reckitt Benckiser’s focus on brands such as Strepsils and Mucinex cold remedies, Kapoor has moved to separate the company’s home-care and health businesses. Reckitt also became a leader in infant nutrition with the acquisition of Mead Johnson Nutrition Co. last year.

On Monday, it increased its forecast for synergies from the deal to about $300 million from $250 million. This year’s savings will only “slightly exceed” additional infrastructure expenses associated with the new health and home-and-hygiene business units, the company said.

Morgan Stanley analysts led by Richard Taylor described the company’s outlook as conservative.

Reckitt Benckiser said it sees 4 percent to 6 percent midterm growth in consumer health, which has been expanding more rapidly than the home-care operations. It’s one of two remaining bidders vying to acquire Pfizer Inc.’s consumer-health business, which includes brands such as Advil and ChapStick lip balm, according to people familiar with the matter. U.K. drugmaker GlaxoSmithKline Plc is the other.

A takeover, which could fetch as much as $20 billion, would be the company’s largest since the Mead Johnson deal. On a call Monday, Kapoor declined to comment on a possible bid.

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