Reckitt Benckiser Tumbles as Weak Pricing Holds Back Growth

(Bloomberg) -- Reckitt Benckiser Group Plc fell the most in nearly a decade as weak pricing of household cleaning items hurt sales in the first quarter, slowing the company’s effort to return to growth after its worst-ever year.

Like-for-like sales rose 2 percent, the Slough, England-based company said in a statement Friday, below the median analyst estimate of 2.6 percent. That follows a year in which Reckitt Benckiser’s sales were flat as the company was hit by a cyberattack and botched a key product introduction.

The shares fell as much as 9.2 percent in London trading, the most since October 2008, after being momentarily halted due to volatility.

Reckitt’s hygiene and home division, which sells brands such as Lysol and Harpic, showed solid volume gains in the quarter but suffered from pricing pressure, a problem that is also afflicting rival consumer giants Unilever and Nestle SA. The company’s health business suffered from the weak launch of a Scholl foot-care product. Reckitt said it expects poor performance from the brand in the near term, which it’s addressing by accelerating new-product releases.

“We clearly have been weighed down by Scholl and one-off factors, but if somebody can see beyond that, you will see a fantastic company that is still running in an incredible way,” Chief Executive Officer Rakesh Kapoor said on a conference call with analysts.

Reckitt Benckiser expects a return to sales growth this year but has joined rivals in warning that deflationary conditions in the consumer-goods industry will curtail profitability. Last month, Reckitt’s shares rose from lows not seen since 2015 after the company withdrew from a bidding process for part of Pfizer Inc.’s consumer-health brands, which include ChapStick and Advil. Kapoor’s pay was cut for the second year amid flat sales.

The company’s refusal thus far to quantify expectations on profitability this year makes its forecasts “frustratingly muddled and opaque,” Bernstein analyst Andrew Wood wrote in a note to investors. The company nonetheless feels the market has understood its forecasts, Chief Financial Officer Adrian Hennah said on the call.

‘Pretty Grim’

“In common with several other consumer-staples companies to have reported so far, this year’s earlier Easter doesn’t seem to have helped first-quarter performance –- or if it has, the underlying picture is pretty grim,” RBC Capital Markets analyst James Edwardes Jones wrote in a separate note.

While demand from an unusually high number of flu-stricken shoppers drove sales of Reckitt Benckiser’s Mucinex cold remedies, the company said growth in that category was offset by competition from private labels, from which it expects to see further impact throughout the year.

Last year, the company expanded into the baby-formula market with a $16.6 billion takeover of Mead Johnson Nutrition Co., which Kapoor has said is an “inflection point” for the company. It has also appointed Kapoor as president of its consumer-health brands to sharpen its focus on its historically fastest-growing division.

©2018 Bloomberg L.P.