* Full-year sales in line with expectations
* Adjusted EPS 316.9 pence, vs 318.9 pence estimate
* Forex to hurt more than expected
* No guidance given on 2018 margins
* Shares down 7 pct (Recasts with comments, details; changes headline)
LONDON, Feb 19 (Reuters) - Reckitt Benckiser's shares sank after the British consumer goods group missed 2017 profit estimates, while tough trading conditions and rising commodity costs hit its outlook.
Although the maker of Durex condoms and Mucinex cold medicine reported higher fourth-quarter sales and forecast another increase this year, it saw only a slight benefit from a strong flu season, gave no 2018 margin target and forecast currency fluctuations would have a worse-than-expected impact.
Another factor weighing on Reckitt's shares was the heightened expectation of it buying the consumer health business being sold by Pfizer, which could potentially dilute shareholders through an equity capital increase.
"When you put it all together, it's a harder pill for some investors to swallow," Liberum analyst Robert Waldschmidt, said.
Reckitt's shares were down more than 7 percent at 1614 GMT in the biggest fall by a European blue-chip stock.
The company pointed to an improved performance at its recently acquired Mead Johnson baby formula business and raised its forecast for cost savings from that deal to around $300 million from the $250 million.
Yet most of that increased savings for 2018 will be offset by a 70 basis reduction in margins due to the costs of integrating it and splitting Reckitt into two operating units.
Reckitt expects "moderate operating margin expansion" in the medium term, despite a 70 basis-point drop for 2017 to 27.1 percent, hurt by the Mead Johnson deal and weak pricing power.
Relatively benign commodity prices and intense competition from retailers like Walmart and Tesco, who are battling for market share against the growing online threat from players like Amazon.com, made it hard to raise prices.
Yet rising costs for commodities like oil is set to raise pressure to boost prices, which were flat in 2017 and down 1 percent in the fourth quarter.
"I expect pricing to come back in the medium term, as it always does but equally the pricing pressure we've seen is not going away immediately," Reckitt CEO Rakesh Kapoor told reporters. He said it could come back during 2018.
HEALTH BOOST ON CARDS?
Reckitt said it expects foreign exchange rates to reduce sales by 10 percent in the current first quarter and 7 percent for the full year, at current spot rates. Analysts were expecting only a 2.9 percent hit for the full year.
For 2018, the company forecast revenue up 13 to 14 percent, with like-for-like sales up 2 to 3 percent. That is an improvement from like-for-like sales that were flat in 2017.
Reckitt faced a costly cyber attack in 2017 and dealt will ongoing fallout from a number of one-time items, such as a tax change in India, a failed product launch and a safety scandal in South Korea. These showed up less in the fourth quarter, helping sales grow just below analysts' 2.1 percent forecast.
Since January, Reckitt has operated as two units. Consumer health, which grew 7 percent a year over the past six years, and hygiene and home products, which grew by 1 percent.
Analysts have speculated it could eventually sell or spin off slower-growing units, as it has done with food and pharmaceuticals, but Kapoor said the split was intended to free them to focus and pursue their own objectives.
Reckitt has not confirmed its interest in the consumer health businesses being sold by Pfizer and Merck, but sources say it is more keen on Pfizer's which includes brands like Centrum vitamins and Advil tablets and could fetch up to $20 billion.
Kapoor declined to comment on Pfizer, although in a presentation to analysts he stressed the success of the five-year-old acquisition of Schiff, which gave Reckitt vitamin supplements like MegaRed, which some interpreted as setting the stage for a further push in the field.
However, Kapoor said it was simply designed to give a snapshot of the business five years on, and to dispel some people's view that it was not a good deal.
"It obviously sounds very coincidental but I don't think it should be taken as that," Kapoor said. (Reporting by Martinne Geller; Editing by Jason Neely/Mark Potter/Alexander Smith)