Reckitt Benckiser Revamps Operations Amid Sales Slowdown -- Update

By Saabira Chaudhuri Features Dow Jones Newswires

Reckitt Benckiser PLC said it would restructure its operations into two separate divisions on the back of a string of disappointing earnings, raising questions as to whether the consumer goods company could be broken up or pursue another big deal.

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The move came as the owner of brands including Durex and Dettol reported a 1% decline in third-quarter comparable sales to GBP3.21 billion, missing analysts' forecasts of 0.6% growth. It also reduced its annual sales guidance for the second time this year, saying it now forecasts flat sales, compared with a previous estimate for 2% growth.

Wednesday's disappointing earnings represent the latest blow for Reckitt, which until last year was a stock-market darling praised for its strong growth and chunky profit margins.

Chief Executive Rakesh Kapoor on a call with reporters said the company is continuing to struggle with the fallout from a cyber attack earlier this year and is grappling with subdued growth across both developed and developing markets.

In response, Reckitt -- which earlier this year bought U.S. babyfood maker Mead Johnson for $16.6 billion -- said it would split the company into a consumer-health unit run by Mr. Kapoor and a home and hygiene unit housing brands like Lysol, Cillit Bang and Harpic run by Rob De Groot, currently head of Europe and North America.

Consumer health, which will house Mead Johnson, will make up about 60% of overall revenue. The new structure takes effect on Jan 1. Mr. Groot will report to Mr. Kapoor, who will also remain group CEO.

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Mr. Kapoor said designated management teams would be able to better focus resources and help both divisions grow, even as they share functions such as procurement and financial services. He said consumer health brands' route to market is very different to those of Reckitt's other brands and that acquiring Mead Johnson makes now "the perfect moment" to pursue a split.

The reorganization is reminiscent of similar restructurings at other big consumer goods companies that have struggled to lift sales, some of which have led to more formal separations.

Unilever PLC housed its spreads business in a separate unit with its own management team before earlier this year saying it would look to sell the unit. Reckitt itself spun off its ailing pharmaceutical division in 2014 and earlier this year sold French's mustard and the rest of its food unit to McCormick & Co.

Mr Kapoor didn't indicate a formal split could happen down the line and also said it was too early to comment on whether Reckitt would look to buy Pfizer Inc.'s consumer health business, which the pharmaceutical company earlier this month indicated it is looking to sell or spin off. The unit includes brands like Advil and Centrum.

"In our view, this new structure could be the prelude to a split of the business or a sale of RB Hygiene Home, particularly if an attractive asset such as Pfizer's consumer-health division becomes available," said Liberum analyst Robert Waldschmidt.

Such talk comes as Reckitt battles a string of troubles. The company has struggled to move past a failed footcare innovation, a scandal in South Korea over a humidifier disinfectant that allegedly killed dozens of people, a slew of high-level executive departures and a cyber attack.

The weak performance in recent quarters has raised questions among analysts about whether Reckitt has deeper, structural problems that go beyond the one-time issues that have capped results lately. RBC analyst James Edwardes Jones described Wednesday's results as "the latest really poor quarter."

For the third quarter Reckitt reported a 4% decline in comparable sales for its homecare brands and a 1% rise in hygiene sales. The health unit reported a sales drop of 2%. Reckitt said Mead Johnson's comparable revenue rose 1% in the third quarter, helped by strong market growth in China.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

October 18, 2017 05:28 ET (09:28 GMT)