Reckitt cuts annual sales outlook as Lysol constraints and China slowdown weigh

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Reckitt cuts sales outlook

Highlights

Reckitt lowers 2023 like-for-like net revenue growth guidance to 3.5–4.5% from 4–5%, after Q3 growth of 3.3% misses expectations.
Temporary manufacturing constraints for Lysol in North America and a 1.3% sales decline weigh on results versus analyst forecast of a 1% increase.
Weak China supplements growth and an expected £175 million hit from the sale of the Russia hygiene business further depress overall group sales.

Third-quarter performance and guidance cut

As reported by Financial Times, Reckitt has reduced its full-year like-for-like net revenue growth guidance to 3.5 per cent to 4.5 per cent, from a previous range of 4 per cent to 5 per cent, after reporting third-quarter revenue growth of 3.3 per cent, below analysts' expectations of 4.1 per cent.

The London-listed maker of Durex and Strepsils says temporary manufacturing constraints linked to facility upgrades have limited its ability to meet demand for Lysol cleaning products in North America. Sales in the region fall 1.3 per cent, compared with analyst expectations for a 1 per cent increase.

Europe returns to growth in the quarter, with sales up 0.8 per cent despite what the company describes as a challenging consumer environment and lower cold and flu incidence.

China weakness and Russia sanctions impact

Emerging market sales rise 8 per cent in the quarter, but the increase is below expectations after growth slows in Reckitt's vitamins, minerals and supplements business in China. The company says the slowdown follows false claims by a competitor, which it says has damaged consumer confidence in the category.

Sales growth for Move Free in China declines after Australian competitor YouthIt is investigated over false claims, including marketing locally manufactured products as imported. The brand generates about £100 million in revenue, and Jefferies analyst David Hayes says the investigation appears to have increased scrutiny of rival overseas brands, weighing on the broader imported supplements category.

Group sales are also affected by sanctions on Reckitt's hygiene business in Russia. The company said in July that it expected a £175 million hit from the sale of that business to local consumer goods group Arnest Management, and added that changes to EU sanctions last year meant it could no longer ship cleaning products into the country; without Russia Hygiene, group sales growth would have been 3.9 per cent.

China’s third-quarter growth outlook and Beijing’s latest support measures were the focus of our earlier coverage, as economists expected only a modest uptick in GDP while activity remained constrained by weak consumption and property-sector stress. We noted that policymakers were rolling out targeted stimulus to shore up demand, but the recovery was still uneven and heavily supported by exports rather than a broad-based domestic rebound.

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