Reckitt reports disappointing Q2 sales, says costs to hit margins

Reckitt said brands including Finish, Airwick, Harpic and Veet, which make up 70% 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% for the three months to June 30, excluding its infant nutrition business in China, lower than the 2.3% growth analysts had expected, according to a company-supplied consensus.

Reckitt Benckiser Group posted disappointing second-quarter sales growth and warned on margins on Tuesday sending its shares 9% lower as costs rise and easing lockdowns slow growth in products such as Lysol disinfectants. The stock, down 5% this year, was the top loser on the FTSE 100 index in morning trading.

Reckitt's comments mirrored those of Dove soap maker Unilever, which last week cut its margin guidance citing higher raw material costs on everything from crude to palm and soybean oil. On a call with journalists, Chief Financial Officer Jeff Carr said Reckitt had witnessed inflation across "most of its commodity groups" with the highest increases seen in plastics, surfactants, and paper.

Ocean freight costs also rose with overall input costs up 8%-9% in the quarter, Carr said. Reckitt forecast adjusted operating margins of 22.7% to 23.2% for 2021, down from 23.6% in 2020.

Bernstein analyst Bruno Monteyne said the margin guidance for the year was effectively "reset" noting that it earlier included the infant nutrition business in China, but now did not. Reckitt sold its infant nutrition business to private equity firm Primavera Capital in June for $1.3 billion in net cash.

"This is effectively a 110 basis point reduction in margin guidance, which we think should have been stated much more clearly and earlier," Monteyne said in a note. JP Morgan Cazenove analysts said they would be cutting their estimates for Reckitt's earnings per share for both 2021 and 2022 due to the revised margin guidance.

The rollout of COVID-19 vaccinations, the re-opening of developed economies, and nearly $6 trillion in U.S. government relief announced since the pandemic's outbreak are fuelling demand for everything from restaurant meals to cars, straining the supply chain, creating labor shortages, and driving up commodity prices. QUARTER SLOWS

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% 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 normalize.

Like-for-like sales rose 2.2% for the three months to June 30, excluding its infant nutrition business in China, lower than the 2.3% growth analysts had expected, according to a company-supplied consensus. It expects third-quarter like-for-like sales to be slower than in the same period last year. Sales are expected to pick up in the fourth quarter, however, led by cold and flu remedies including Mucinex and Strepsils.

The company, which rebranded Reckitt from RB earlier this year, maintained its full-year sales growth forecast of between 0% and 2%.

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