Cillit Bang maker Reckitt Benckiser shares dive after ‘self-inflicted’ wound hits sales
Shares in Cillit Bang maker Reckitt Benckiser Group (RB) tumbled over four per cent today as it reported lower sales for its third quarter.
The maker of Durex condoms, Gaviscon and infant food brand Mead Johnson Nutrition (MJN) blamed the miss on production problems at a European baby formula factory.
Like-for-like sales rose two per cent year on year in the three months to 30 September, the firm said in a trading update, missing the expected growth target of four per cent due to a technical disruption at its Mead Johnson Nutrition (MJN) facilities, costing £70m in lost sales.
Rakesh Kapoor, chief executive officer, said: "The quarter was impacted by a temporary manufacturing disruption at our European plant. This affected sales to a number of markets, occurred during a period of unusually high market growth and before our new facilities in Australia were operational and able to diversify our supply chain."
Kapoor added that the disruption had been resolved and supply restored before the end of the quarter, although "some residual impact" would be expected on the fourth quarter as well as a knock-on effect in 2019.
Despite this set back, Reckitt Benckiser reiterated that it was on track to reach its total net revenue growth target of 14-15 per cent.
Steve Clayton, manager of the Hargreaves Lansdown Select funds, which has positions in RB, was critical of the trading update, describing the company's difficulties in the third quarter as "self-inflicted".
"RB had a great quarter, apart from a problem in their European baby milk plant. RB are blaming it on a problem at a European factory, but are also feeling the impact of slower birth rates in China," Clayton said.
"Customer demand is solid enough, but the group started with low levels of inventory so when things went wrong in the manufacturing plant, there was limited ability to keep supplying customers."
Clayton emphasised the lasting impact the technical hiccup was likely to have on sales, saying new mothers who could not find MJN products on the shelves would switch to competitor brands and "probably won’t come back".
Despite strong performances of brands like Dettol and Nurofen, Clayton expects investors to remain cautious after two recent profit warnings, a cyber attack that hurt sales and the imprisonment of a former South Korean executive over sales of a humidifier disinfectant linked to deaths of 100 people.
"RB has had an unfortunate run of events recently," Clayton said. "First there was the Korean sanitiser tragedy, which is still ongoing, then there was the disruption caused by last year’s cyber attack. This latest issue is clearly of RB’s own making and the company will need to convince investors that they have fixed this and that there is nothing else on the horizon."