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Reckitt Benckiser shows Mead Johnson already contributing to growth

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Reckitt Benckiser shows Mead Johnson already contributing to growth

Reckitt Benckiser Group PLC on July 27 demonstrated that the integration of Mead Johnson Nutrition Co. is on track and that the acquisition already is contributing to the group's growth.

MJN, which Reckitt Benckiser bought June 15, 2017, for $16.6 billion, fueled growth in the company's infant formula and child nutrition business, with a 9% increase in revenue on a pro forma basis in the second quarter ended June 30 and a 7% jump in the first half.

The performance helped Reckitt Benckiser deliver first-half earnings ahead of a consensus estimate and allowed the company to raise its full-year 2018 guidance. Its share price was up 8.8% in lunchtime trading in London.

MJN's growth was "not only on track but a bit ahead of our expectations," Reckitt Benckiser CEO Rakesh Kapoor told analysts during a conference call following the release of results.

Growth at MJN came mostly from China, which Reckitt Benckiser called the largest market in the world for infant formula and child nutrition products.

Kapoor cited a spurt in birth rates in China in 2016 compared with 2015, although rates had come down in 2017. Nonetheless, with Reckitt Benckiser offering nutrition products covering the first few years of children's lives, the company saw opportunities for continued growth.

In an unusual departure, Kapoor told analysts that between December 2016 and the end of June 2017 MJN's operating margin had declined about 500 basis points at a cost of about $100 million. However, Reckitt Benckiser had accounted for the shortfall in its financial modeling.

Reckitt Benckiser's management felt "confident we can make up that $100 million gap," said Kapoor, pointing to levers such as better product mix and higher top-line growth. Kapoor added that the Slough, England-based company was "a bit ahead of where we thought we would be."

The household products maker raised its target for synergies from the MJN acquisition by $50 million to $300 million by the end of the third year of ownership from its original $250 million goal.

The performance of the infant formula and child nutrition business in the first half, along with 6% pro forma growth in revenue from its over-the-counter health portfolio, which includes pain relievers Gaviscon and Nurofen, helped to offset a 1% decline in other health products, which include Durex, a brand of sexual health products, and Scholl, a maker of footwear and foot care lines.

Overall, the health division, which accounts for 62% of Reckitt Benckiser's business, posted first-half pro forma revenue growth of 4%. The hygiene home unit, comprising brands like disinfectant Lysol and dishwasher tablets Finish, also delivered 4% like-for-like growth.

Reckitt Benckiser reported adjusted diluted earnings per share in the six months to June 30, 2018, rose to 139.9 pence from 124.9 pence, beating a mean consensus of 139 pence compiled from three analysts' estimates, according to data from S&P Capital IQ.

Net income jumped to £874 million from £512 million as revenue soared to £6.14 billion from £4.98 billion.

In the second quarter, net revenue was £3.03 billion, an increase of 5% year over year on a pro forma basis and 4% on a like-for-like basis. A cyberattack in the second quarter of 2017 disrupted the company's ability to manufacture and distribute products to customers in some markets and added about 2% to the like-for-like comparison.

Reckitt Benckiser increased its target for total net revenue growth at constant rates to 14% to 15% from a previous goal of 13% to 14%, implying like-for-like revenue growth at the upper end of its 2% to 3% range. Its outlook for full-year operating margin was unchanged.

In lunchtime trading, its shares were up 558 pence at 6,869 pence.