Reckitt Benckiser’s share price dropped by 5.45% to £55.52 after the consumer good giant cuts its full-year sales outlook and warned of slimmer profit margins following a disappointing third quarter performance.
The wider FTSE 100 opened a little higher at 7,166.61.
“Reckitt Benckiser’s new CEO Laxman Narasimhan looks like he is taking advantage of the honeymoon period enjoyed by incoming chief executives as he slashes full year sales guidance.
“Kitchen sinking or resetting expectations is a well-rehearsed path in the corporate world although in truth Narasimhan, who joined in September, may have had little choice but to scale back sales expectations after a pretty ropey third quarter.
“Reckitt has been struggling for a while – evidenced by the fact this is the second downgrade so far in 2019.
“At least Narasimhan has the decency to sound hacked off about the situation “prioritising execution and operational performance as a matter of urgency”. Which could be code for knocking a few heads together.
“The health business is the culprit for the Durex and Dettol maker – with weak sales of cold and flu medicine in the US and baby products in China.
“Where Narasimhan is making a clear choice is to sacrifice margin in the short-term to invest in the company’s brands. This is probably a good move given the widespread perception that spending on its brand portfolio has been too modest in recent years.
“A company like Reckitt is very reliant on its brand power which needs to be replenished by marketing spend and innovation.
“The company also faces the challenge of a structural shift in shopping habits away from big brands.”
Mead Johnson makes baby formula under the name of Enfa and saw sales of $3.7bn in 2016.