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Reckitt Benckiser – spilt milk sours performance

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Reckitt Benckiser (RB) saw Q3 sales slip back 2% from their 2017 level, driven by currencies and a problem in their European manufacturing facilities.

The shares opened down 4% on the news.

Commenting on the trading statement, Steve Clayton, manager of the HL Select funds, which have positions in RB said:

‘RB had a great quarter, apart from a problem in their European baby milk plant, which cost them £70m in lost sales. Elsewhere, the Hygiene & Home (Hy-Ho) division grew at an underlying 4% pace, as did the rest of their Health brands portfolio. RB expect the formula milk business to be back on form in Q4 and see underlying demand as strong. So they are sticking with their full year targets of 14% to 15% revenue growth.

The market could well look warily on the news that MJN had a poor Q3. RB are blaming it on a problem at a European factory, but are also feeling the impact of slower birth rates in China. The rest of the group had a pretty solid quarter, with strong growth in brands like Dettol, Mucinex and Nurofen. Geographically, North America and Developing Markets were strong, but the problem at MJN held the group’s European performance back.

RB’s difficulties in Q3 look self-inflicted. Customer demand is solid enough, with strong growth for MJN in most of its end markets. But the group started with low levels of inventory so when things went wrong in the manufacturing plant, there was limited ability to keep supplying customers. RB have new manufacturing facilities coming on stream in Australia, which should make them more resilient in future. But there will be knock-on effects; new mothers who could not find MJN products on the shelf will have switched to competitor brands and probably won’t come back.

RB have had an unfortunate run of events recently. First there was the Korean sanitiser tragedy, which is still ongoing, then there was the disruption caused by last year’s cyber-attack. This latest issue is clearly of RB’s own making and the company will need to convince investors that they have fixed this and that there is nothing else on the horizon. Elsewhere, the rest of the group looks to be performing to plan and the long term attractions of the stock are strong.




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