Newly appointed Reckitt Benckiser chief executive Laxman Narasimhan is enjoying the benefits of the honeymoon period enjoyed by incoming CEOs by making big decisions early in his tenure, a leading analyst has said.
AJ Bell investment director Russ Mould was commenting following the publication of Reckitt Benckiser's third quarter results, which saw the business post like-for-like growth of 1.6% for the period, however volumes were down 1%, while its Health division also saw declines.
'Reset Expectations'
“Kitchen sinking or resetting expectations is a well-rehearsed path in the corporate world although in truth Narasimhan, who joined in September, may have had little choice but to scale back sales expectations after a pretty ropey third quarter," Mould said.
Announcing its results, Reckitt Benckiser said that it was cutting its full-year forecast, setting a revenue growth target of between 0% and 2%, while full-year operating margins are also likely to see a 'modest decline'.
“Reckitt has been struggling for a while – evidenced by the fact this is the second downgrade so far in 2019," said Mould. “At least Narasimhan has the decency to sound hacked off about the situation, 'prioritising execution and operational performance as a matter of urgency'. Which could be code for knocking a few heads together."
Divisional Performance
Within its Health division, the group saw like-for-like growth of 7.2% in its Infant Nutrition business, however, it said that the most recent market growth readings are 'below our medium-term expectations', with growth moderating in the core Chinese market.
Its OTC division posted a 6.8% decline in the period, with its Mucinex brand seeing challenges from private label competitors in the US, while its Other Health division, which includes Dettol and Durex, seeing a like-for-like decline of 2.5.
“The health business is the culprit for the Durex and Dettol maker – with weak sales of cold and flu medicine in the US and baby products in China," said Mould.
The group's Hygiene division, meanwhile, posted like-for-like growth of 4.5% for the period, with growth in all geographical divisions.
Commenting on the group's performance, Narasimhan said that it reflects an "extended period of significant change and disruption in the company", adding that he has "made it clear [...] that any activities that detract focus and attention from improving our operational performance, be paused."
Sacrifice Margin
As Mould explained, this would indicate that “where Narasimhan is making a clear choice is to sacrifice margin in the short-term to invest in the company’s brands. This is probably a good move given the widespread perception that spending on its brand portfolio has been too modest in recent years.
“A company like Reckitt is very reliant on its brand power which needs to be replenished by marketing spend and innovation," he added. “The company also faces the challenge of a structural shift in shopping habits away from big brands.”
Narasimhan has already announced a major new management appointment at the group, with Ahold Delhaize's Jeff Carr joining as the company's chief financial officer from next April, for what will be his second spell at the consumer goods business.
On Carr's appointment, Narasimhan said that the UK national boasts a record of "transformational strategic and operational leadership, consistent performance delivery, strong capital allocation discipline and with building strong teams; all of which lead to long term shareholder value creation."
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.
