Jason Butler of NW Brown: The key challenge for Reckitt Benckiser as competitor pressure grows
PUBLISHED: 06:30 01 May 2018
Reckitt Benckiser’s first-quarter trading update showed a 2% rise in like-for-like sales against the same period last year – but the share price dropped as the results missed analyst expectations.
Management at the British multinational consumer goods company, known for brands such as Dettol, Nurofen and Durex, has been enthusiastically engaging in M&A activity in an attempt to promote growth.
The purchase in February 2017 of Mead Johnson, an international baby formula manufacturer, continues to integrate well. There have been reported cost-saving synergies of $25m so far and an expectation of $300m over the next three years.
Some 50% of group revenue now comes from higher-margin consumer healthcare brands. In an attempt to streamline the business, the company also restructured itself into two separate divisions in January: health and home hygiene. With health clearly the growth driver of the business, management are now reviewing the lower-margin home hygiene division.
Reckitt Benckiser also finalised a deal in the summer to sell its French’s Food brands to McCormick & Co. The deal was completed for $4.2bn cash and received well by investors. The company said the cash would be used to reduce debt from the Mead Johnson acquisition and continue to consolidate the business into more defined divisions.
Despite the setbacks, manage- ment remain confident the steps taken to focus the business will drive long-term growth.
Its portfolio of power brands enable the company to enjoy comparably high operating margins. It will be important to see whether this can be maintained under growing pressures from global competitors.