Reckitt to Sell Some Home-Care Brands, Review Infant Formula Unit in Shake-Up — Update

By Elena Vardon

Reckitt Benckiser said it would sell off some of its home-care brands and launch a strategic review of its troubled infant-formula unit Mead Johnson as it seeks to streamline its business with a major overhaul.

The consumer-goods company--which counts Dettol, Harpic and Durex among its brands--said Wednesday that it aimed to exit its portfolio of home-care brands that are no longer core by the end of 2025 as it refocuses on its high-margin "powerbrands" in a bid to be more efficient.

The London-listed group said it would consider all options for brands such as Air Wick, Calgon and Cillit Bang, which brought in 1.9 billion pounds, or around $2.45 billion, of sales in 2023.

Reckitt will also consider strategic options for its Mead Johnson nutrition business, which faces litigation in the U.S. In March, Reckitt was ordered to pay $60 million in compensation related to the death of a premature baby that was fed its Enfamil Premature 24 product.

While a disposal of the unit is likely, a sale will be challenging until litigation issues have been resolved, according to analysts.

"These actions allow the company to focus capital against brands that offer the best long-term opportunity for growth," Reckitt said.

Altogether, the group is reviewing just over a quarter of the company, representing GBP4 billion in revenue, Barclays said in a note to clients.

Reckitt said the reorganization would remove management layers and the global business-unit structure, moving toward a category structure in three regions, resulting in cost savings.

The group expects to incur around GBP1.0 billion in cash restructuring and transformation costs over the period to the end of 2027.

From the start of next year, the company will report its results under three divisions--Reckitt, Essential Home and Mead Johnson, it said.

Shares in London rose around 3% to 4,550 pence in early trade as the market welcomed the strategic overhaul. Since the start of the year, the stock has shed 16%, dragged by the Mead Johnson litigation, disappointing results and shareholder pressure.

The review is evidence of management getting a grip, RBC Capital Markets analysts said. Citi said the "shrinking to growth" narrative is appealing but will take time.

Alongside its strategic update, Reckitt published second-quarter results and trimmed its revenue guidance for 2024 due to supply disruptions caused by tornado damage at its Mount Vernon warehouse earlier this month and the impact on its nutrition business. The warehouse is a key logistics facility for Mead Johnson. Reckitt now expects like-for-like revenue growth of between 1% and 3%, compared with previous guidance of growth in the 2% to 4% range.

For the three months ended June 30, the company posted GBP3.43 billion in net revenue, in line with estimates taken from a company-compiled consensus. Net revenue like-for-like growth was flat--falling short of estimates of 0.1%--as growth in its hygiene and health businesses offset declines in nutrition. Price mix was up 2.2%, while volumes fell 2.2%, compared with expectations of 1.7% growth and 1.5% decline, respectively.

Like its peers, Reckitt has been struggling to balance between prices and volumes amid a consumer-confidence recovery and decreasing input costs. As inflation rose, companies lifted their prices to pass on the cost pressures to consumers, often sacrificing sales volumes.

"We expect revenue growth to accelerate in [the second half] and continue to target operating profit growth ahead of net revenue growth," Chief Executive Kris Licht said. The group also intends to lift its shareholder returns through a GBP1.0 billion share buyback program over the next 12 months and a dividend hike.

Write to Elena Vardon at elena.vardon@wsj.com

(END) Dow Jones Newswires

July 24, 2024 04:29 ET (08:29 GMT)

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