×

UPDATE 3-Reckitt to reshape as sales growth evaporates

* To split into health and hygiene/home business units

* Cuts year sales outlook to flat from 2 pct growth

* Q3 like for like sales down 1 pct, miss estimates (Adds comments from analyst, Breakingviews link)

LONDON, Oct 18 (Reuters) - Britain's Reckitt Benckiser will split its business into two divisions -- consumer healthcare and home and hygiene products -- to try to revive sales that are set to stall this year.

The change follows the group's sixth straight quarter of weak results. It hopes to improve performance in its newly expanded health business, while bringing greater focus and accountability to its slower-growth home and hygiene business.

Reckitt, whose products range from Durex condoms to Lysol disinfectant, has blamed fallout from a cyber attack, a failed product launch and a safety scandal in South Korea for its lacklustre sales. The sales fell 1 percent in the third quarter, missing analysts' expectations for growth of 0.6 percent.

The company is now targeting only flat like-for-like sales for the full year in its base business, down from a previous target of 2 percent growth. That goal was already cut from 3 percent, due to a June cyber attack that hobbled its operations.

Reckitt, whose profit margins are among the sector's best, had for years enjoyed a reputation for setting the pace for sales growth. Including Wednesday's share price decline, the stock has fallen more than 14 percent since June because of concerns over its performance.

TWO HEADS

Reckitt will operate from two business units from the start of 2018.

Rob de Groot, who currently runs Reckitt's business in Europe and North America, will head the home and hygiene business. He will report to Rakesh Kapoor, who will remain the group's CEO and also have charge of the healthcare operations, which account for two-thirds of the company.

The decision was made after the $16 billion purchase of baby milk maker Mead Johnson gave it greater scale in consumer health, Kapoor told Reuters.

Some analysts saw the restructuring as a precursor to parting with home and hygiene, as Reckitt did with its pharmaceutical business in 2014 and when it sold its North American food business in August.

"In our view, the new structure may be a prelude to a split of the business or a sale of RB Hygiene Home, particularly if an attractive asset such as Pfizer's consumer health division becomes available," Liberum analysts said.

Pfizer said this month it was weighing options including a sale of that business, home to Advil and Chapstick.

Kapoor denied any intention to exit health and hygiene, saying the move was to improve each business over the long term.

But he said he was interested in the Pfizer business.

"If one of those options (being considered) is going to be a sale, we are going to look at that. But we should not try and pre-guess," he said. He declined to comment on potential interest in the consumer health business Merck is selling.

Analysts have questioned whether Reckitt has the financial and managerial capacity to buy the Pfizer business so soon after the purchase of Mead Johnson.

CREDIBILITY QUESTIONED

Reckitt's shares were down 1.8 percent at 6,911 pence at 1150 GMT, having dropped as much as 2.7 percent earlier in the session as investors digested the disappointing quarterly sales and a bigger than expected cut to its full-year sales forecast.

"Management credibility will take yet another blow with a second LFL sales warning in 2017," Bernstein analysts said, adding that the new forecast for zero growth was below expectations for a cut to 1 percent growth.

Investec analysts said the new structure reflected the growing importance of the consumer health unit.

Even though the separate units will make Reckitt more expensive to run, due to some duplicated costs, Kapoor said it made sense to separate the units as their products are marketed and sold differently. ($1 = 0.7588 pounds)

(Reporting by Martinne Geller; editing by Greg Mahlich and Keith Weir)