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Reckitt CEO Focuses on Health, Looking Beyond Worst Year

Published on Oct 18 2017 12:10 PM in A-Brands tagged: Reckitt Benckiser / Pfizer / Rakesh Kapoor

Reckitt CEO Focuses on Health, Looking Beyond Worst Year

Reckitt Benckiser separated its home-care and health businesses, sharpening its focus on brands such as Durex condoms and Enfamil baby formula after a second cut in the sales forecast this year.

The Slough, England-based company’s move to create two autonomous units could lay the groundwork for a broader strategic shift, or even a sale of the household business. It followed a quarterly revenue decline as the company tallies the fallout from a cyberattack, lacklustre demand for new products and other woes.

“You know I’m never satisfied with our performance, but I believe our business is fundamentally strong,”  CEO Rakesh Kapoor said on a call with reporters.

The forecast reduction adds to pressure on the CEO during a difficult year in which his pay was cut over the sale of toxic household disinfectants in South Korea that occurred before he took over. That was followed by a cyberattack, a sales slump at newly acquired baby-formula business Mead Johnson and poor performance in cold remedies and foot-care products.

Growth Potential

Kapoor has expressed  potential interest in acquiring a package of Pfizer brands, including Advil and ChapStick, that the health-care giant is considering selling. As consumer-goods giants are casting about for responses to waning demand for mainstream products, Unilever and Nestle have put slow-growing units up for sale, while Reckitt Benckiser has disposed of its mustard and sauces business.

Creating more distance between Reckitt Benckiser’s divisions could help Kapoor build the health business, which he’ll personally lead and has already bolstered with the Mead Johnson acquisition. Rob de Groot, currently head of Europe and North America, will become president of the Hygiene Home business, which includes brands such as Woolite and Air Wick.

Andrew Wood, an analyst at Sanford C. Bernstein, has said that RB should not miss the “once-in-a-decade” opportunity to acquire Pfizer’s consumer business, which could be funded in part through a sale of the home-care unit. But the latest setbacks could deter shareholders from supporting any bid for the Pfizer unit or other health businesses.

“Management credibility will take yet another blow,” Wood wrote in a note.

Reckitt Benckiser shares have fallen 14% from their peak in June amid a broader market rally and were trading down 0.9% Wednesday in London.

Reckitt said it now expects a flat full-year performance, abandoning its earlier expectation of 2% growth. The move came after third-quarter comparable sales fell 1%, missing analyst estimates for a gain of 0.5%.

Supply Chain

North America revenue declined by 2% in the quarter, and the Amope foot-care product line slumped. The cyberattack caused problems in the company’s supply chain, leaving it unable to satisfy demand for Mucinex cold and flu treatment, Reckitt said. The company also lost sales in India as a result of the attack, which compounded problems stemming from changes in tax rules.

As Reckitt Benckiser contends with crises on a growing number of fronts, the company has made its biggest management shuffle since Kapoor became CEO in 2011. At least four senior executives have left their roles recently, while Chairman Adrian Bellamy will step down next year.

Morgan Stanley analysts led by Richard Taylor described the structural change as a silver lining as the company tries to work its way through a difficult period.

“More bad news, few positives,” they said in a note. “While we understand Reckitt Benckiser may remain in the penalty box near term, it is still our top pick” in the food, home and personal-care category.

News by Bloomberg, edited by ESM. Click subscribe to sign up to ESM: The European Supermarket Magazine.

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