Reckitt hit by surprise slowdown in baby food sales
Reckitt Benckiser cut its full-year revenue target, after lower-than-expected sales in its last quarter under long-time chief executive, Rakesh Kapoor, hurt by a surprise slowdown in demand for infant formula in China.
Shares of the British household-goods maker, which had risen the previous day to near their highest level for the year, fell by over 3%.
The Vanish-to-Durex maker said it now expected full-year, like-for-like sales growth of between 2% and 3%, down from its previous target of 3% to 4%, also blaming a tough market in Europe for its downgrade.
Reckitt, which kept its “broadly flat” operating margin target, said slowing birth rates over the past two years, and increased competition, had led to market share losses for its Enfamil infant nutrition products in China, its biggest market for baby food.
The company is also recovering from supply chain disruptions in China, after technical issues at a baby formula factory in the Netherlands (which supplies the Asian market) prevented it from supplying retailers with formula in the third-quarter of 2018.
The disruption forced mothers to turn to rival products and, in part, helped rival Danone, which last week reported strong infant nutrition sales in China, as its strategy to focus on more premium products paid off.
The baby food market in China is particularly important for jobs across Ireland and any signs from the huge market are closely watched. Danone makes baby food in Cork and Wexford, while Nestle has a huge plant in Limerick.
The supply of infant formula to China is hugely important for the Irish dairy industry and hundreds of manufacturing jobs here — this country supplies 20% of the world’s infant formula and is the second-biggest exporter to China.
Based on figures from three years ago, exports of Irish baby food amounted to at least €1.2bn.
Sales to China have been boosted by rising prosperity and a contamination scandal 10 years ago of local products. And demand for infant formula also ramped up in what is Asia’s largest economy, after it ended its one-child policy around 2016.
Mr Kapoor also blamed conditions in Europe, saying “customers are quite challenged.”
Brands affected by this included Scholl.
“Within health, infant and child nutrition was a big negative surprise,” Bernstein analyst Andrew Wood said, adding he expected the business to grow in the third quarter, as it faced an easier comparison with last year.
