Reckitt shares fall over ‘lower margins’
COMPANY MISSES ITS SALES GROWTH ESTIMATE
RECKITT joined other top consumer goods companies with a warning its margins will be squeezed this year due to higher costs, sending its shares nine per cent lower in early trading last Tuesday (27).
The FTSE-listed company also missed second-quarter sales growth estimates as growth slowed in demand for its Lysol disinfectants and Finish dishwashing detergents.
Chief financial officer Jeff Carr said Reckitt had witnessed inflation across “most of its commodity groups”, with costs trending up between eight per cent and nine per cent for the year. Reckitt said it now expects its 2021 adjusted operating margins to fall to between 22.7 per cent and 23.2 per cent from 23.6 per cent in 2020.
Chief executive Laxman Narasimhan spoke of the impact of inflation on the company.
“It’s coming pretty much across the board, but in particular oils, surfactants, logistics, freight, for example, are clear areas that we have highlighted. The company will work out how the rising costs would feed through to price increases for its products on a countryby-country basis,” Narasimhan told The Guardian.
“This is a local market-by-market decision. You can look at where you stand versus competitors, look at what we can afford, we don’t want to lose competitiveness and so you’ll end up making that call literally market-by-market.
“We expect that we won’t be able to offset all commodity inflation by the end of this year, but we hope to do so by next year.”
The pandemic boosted Reckitt’s sales to record levels last year, but there are signs that momentum is easing as vaccinations gather pace and stay-at-home restrictions in developed economies are lifted.
Reckitt said brands including Finish, Airwick, Harpic and Veet, which make up 70 per cent of its sales, are growing, but at slower rates than last year, while brands like Durex, Vanish and Nurofen are returning to growth as market conditions normalise.
Like-for-like sales rose 2.2 per cent for the three months to June 30, excluding its infant nutrition business in China, lower than the 2.3 per cent growth analysts had expected, the company said. Second-quarter net revenue fell 8.2 per cent to £3.1 billion.
Reckitt said it expects third-quarter like-forlike sales to be slower than in the same period last year. Sales are expected to pick up in the fourth quarter led by cold and flu remedies, which were starting to show “positive momentum” in places such as Australia and in the US in states where mask wearing is not mandated.
The company, which rebranded as Reckitt from RB earlier this year, maintained its fullyear sales growth forecast of between zero per cent and two per cent.