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Stocks in Focus: Reckitt Benckiser

This week I am looking at Reckitt Benckiser after it reported better-than-expected figures last week, helped by good performance in its consumer healthcare division. Profits for the first half of 2018 rose by 9% compared to the same period in 2017. Overall, management estimates that revenue growth will now be in the order of 14-15% this year, up from its previous 13-14% guidance.

A major contributor to the numbers was strong sales of infant nutrition products in China after the company expanded into baby formula last year with a $16.6 billion takeover of Mead Johnson. The acquisition increased sales by double digits in China as the country experienced high birth rates following the end of its one-child policy in 2016. However, growth for the region is expected to normalise as birth rates in China stabilise.

The group restructured into two standalone lines of business earlier this year. One division focusses on Reckitt’s better-performing consumer healthcare brands and the other on household consumer goods such as detergents and cleaning products. In the consumer goods industry, prices are being pushed down by a combination of Amazon’s rising prowess in selling household staples, a decline in brand loyalty as consumers shop around online, and the growing popularity of discount retailers. Consequently, Reckitt has joined rivals in warning that this very competitive retail marketplace is affecting profitability.

Broadly, the interim update brings a breath of fresh air to the group after a series of tough quarters that included a cyberattack and a failed product launch in the Scholl foot-care line. Reckitt now looks to be recovering its poise as synergies from the Mead Johnson acquisition start to materialise and earnings growth starts to improve. CEO, Rakesh Kapoor, stated that they are not on top of everything yet but are well on track.

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