Reckitt Benckiser's first-quarter growth disappoints

Net revenue of £3.1bn in the first three months of the year was up 23% on last year, thanks to the acquisition of infant formula and child nutrition business Mead Johnson Nutrition.

On a proforma basis growth was 3%, with RB's practice of rounding its growth figures unlike any of its European peers a "great frustration" to analysts, while on a like-for-like basis that excludes currency swings, acquisitions, and disposals, revenues were up 2%, the same as in the fourth quarter of last year but at the lower end of the full-year guidance range. LFL growth was short of the company-compiled consensus estimate for 2.6% growth.

With the integration of Mead Johnson "going well", chief executive Rakesh Kapoor said there was "work to do" in parts of Health, particularly with Scholl remaining weak, but he said the company was "well on track" to hit full year targets of 13-14% total net revenue growth, implying 2-3% LFL growth.

Proforma and LFL growth were led by volume increases, though proforma growth in the health segment comprised of roughly one third volume and two thirds price and product mix, lifting LFL sales 1%. Mead Johnson contributed strong proforma growth of 6% but the rest of the division mixed at 1% LFL as good growth in Health Relief brands such as Gaviscon and Strepsils offset by weakness in some of our Health Wellness and Health Hygiene brands

The Hygiene Home unit, which produces Finish dishwasher tablets and Air Wick fresheners, reported sales were down 3% but LFLs up 4% thanks to strong volumes aided by seasonality on Lysol disinfectant amid negative pricing.

On a regional basis across the group, a "good flu season" helped North America LFL sales increase 6%, Europe and the antipodes were down 1% and developing markets up 4% as China and India continued to perform well but "macro issues" dragged on the Middle East and Russia.

Kapoor felt it was a "solid start" to 2018 under the new organisational structure brought in around the Mead Johnson purchase, which he was calling 'RB 2.0', with benefits expected to "continue to materialise".

He said Scholl was "stabilising" but still significantly below the prior year and has reduced the rest of LFL performance in Health by two percentage points in the quarter. "We are addressing our performance in Scholl through acceleration of our pipeline, penetration improvement programmes and streamlining our range," he said.

"Our priority remains organic growth under our new focussed organisation structure," Kapoor said.

RB shares fell more than 7% to 5,367p on Friday morning, the lowest since early 2015.

Reckitt’s growth is “bottom-of-class” out of its peers who have reported first-quarter sales so far, Bernstein analyst Andrew Wood said in a note to clients.

Wood said the health business was “by far the biggest disappointment” and felt Scholl being again used as an excuse was “very surprising”.