Reckitt Benckiser Group PLC's shares fell 4% on Oct. 22 after the company reported weak sales performance for the third quarter of 2019 and lowered its revenue and margin forecast for the full year.
The maker of Lysol disinfectant, Durex condoms and Clearasil face wash said like-for-like sales in the three months to Sept. 30 grew 1.6% to £3.29 billion, compared to an expected increase of 3.2% based on analysts' consensus forecasts provided by Reckitt Benckiser.
The British company reduced its like-for-like net revenue growth target for the full year to 0%-2% and said it expects to see a modest decline in full-year adjusted operating margins compared with previous expectations of flat margins. The lowered expectation reflects a weak third-quarter performance in the health business and seasonal uncertainty in the fourth quarter.
"I realize our performance over the last three years and, once again in the just-completed third quarter, has been unsatisfactory," said Laxman Narasimhan, who has been CEO of Reckitt Benckiser for just seven weeks after moving from PepsiCo Inc., where he was global chief commercial officer. In his comments to analysts after the results were released, Narasimhan added: "Simply put, our hygiene home business is stable and performance is consistent and improving. Our health business continues to suffer from integration-related disruption and execution missteps."
It is the second time Reckitt Benckiser has reduced its full-year revenue guidance. It initially projected a 3% to 4% increase but cut that to 2% to 3% on July 30 after publishing results for the first half.
In morning trading on the London Stock Exchange, Reckitt Benckiser's shares were down 4% to 5,638 pence.
Narasimhan added: "On top line, we are reducing our full-year 2019 target to 0% to 2% like-for-like growth in the year. Arithmetically, with a 0.9% year-to-date revenue growth, this could cover a range from a ... 3% decline to a 5% growth in Q4 2019. We do not expect either extreme."
Third-quarter sales for the health business fell 0.3% to £1.96 billion partly due to more cautious retailer seasonal purchasing patterns in the U.S. "Clearly, we need to further ramp up our innovation in health," said CFO Adrian Hennah, who will retire from the company in October 2020. "We know that the play we have is a combination of our deep consumer knowledge as well as our science capabilities."
Sales in the third quarter were also hit by challenging market conditions in the infant formula business in China. Market volumes of infant formula products in China have slowed along with a decline in the birth rate in 2017 and 2018, while competition has intensified. In the hygiene home business, like-for-like sales rose 4.5% in the third quarter to £1.33 billion.
"I am prioritizing execution and operational performance as a matter of urgency," said Narasimhan. "And we are making decisions and taking action to stabilize the business. With operational performance being my top priority, I have made it clear within the organization that any activities that detract focus and attention from improving our operational performance be paused."