Reckitt Benckiser growth slows as South Korea and Russia weigh

Health, hygiene and home products manufacturer Reckitt Benckiser saw sales growth slow in the third quarter as it was impacted by ongoing legal issues in South Korea and low demand in Russia.

In a trading statement, the company reported 2% like-for-like (LFL) sales growth in the third quarter, down from 5% in the first half, although total growth increased a whopping 17% due foreign exchange rate movements.

In the year to date LFL growth was 4% and the company said it was targeting full year LFL growth of 4%.

South Korea has launched an investigation in a humidifier sanitiser sold by the company's business unit in the country between 2001 and 2011, as an ingredient in one of its product was linked to nearly 100 deaths.

The issue significantly affected the Korean business and adversely impacted the company’s LFL performance by around -1.5% in the third quarter and developing markets by mid-single digits.

Developing markets’ LFL growth climbed 7% with particular gains in India and China, while Brazil remains a “challenging” market.

For Europe, North America, Australia and New Zealand the company had a “resilient performance” despite materially lower demand in foot care brands Scholl and Amopé, and weak consumer environment, particularly in Russia.

Chief executive Rakesh Kapoor said in an environment where market growth rates have softened, the company has continued to make strategic progress particularly in India and China through the development of e-commerce channels.

“Our third quarter performance has been adversely impacted by the flagged issues in Korea, Russia and our Scholl innovation.

“These challenges will impact the near term. We are targeting full year like-for-like net revenue growth of +4%. We remain very confident that our medium and longer term strategic choices are right and will continue to drive shareholder returns."

George Salmon, equity analyst at Hargreaves Lansdown, said declining sales in South Korea might have been expected, but Wednesday’s results also confirmed weaker trends in other areas.

“While the disappointing performance from the latest Scholl products may not be the end of the world, the group will hope for improvements in the future. After all, reinventing existing brands has made Reckitt into the success it is today.

“Fellow consumer goods giant Unilever is bracing itself for tougher market conditions, and Reckitt management have lowered expectations for the full year. This could mean that the cost-cutting programmes that both are undertaking take on greater significance this year.”

Darren Shirley, an analyst at Shore Capital, said it was expected that the company would issue a weak third quarter trading update but it was unclear as to how weak as it reported 2% growth.

“With no further clarification this could mean anywhere between 1.5 – 2.5%, though whatever the exact number, trading has been below consensus expectations of 2.8% and is likely to be below Shore Capital’s expectation of 2.4%. Looking out for the full year, with the weak third quarter trading in tow management has lowered its’ like-for-like sales target from 4 – 5% to 4%, which again could reflect a target of anywhere between 3.5 -4%, though we strongly expect this to be at the lower end of the range."

He said while like-for-like are likely to be at the disappointing end of expectations, actual sales appear to be robust, Shore Capital currently expects full year 2016 earnings per share of 293.7p.

Shares in FTSE 100 Reckitt Benckiser were down 2.74% to 7126.12 at 0901 BST.