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Declining Quarterly Sales For Reckitt Following An Examination Of Its Middle East Business

Declining Quarterly Sales For Reckitt Following An Examination Of Its Middle East Business
The consumer goods company Reckit had its shares fall 10% on Wednesday after missing fourth-quarter like-for-like net sales projections due to an audit revealing certain workers had underreported liabilities in the Middle East.
Investors slammed Reckitt's "vague" expectations for this year, as the company's shares fell to their lowest level since early in the COVID-19 epidemic in March 2020.
A recent discovery of "an understatement of trade spend in two Middle Eastern markets related to the fourth quarter and prior quarters of 2023" was made by the company that makes Dettol cleaning products and the painkiller Nurofen.
Consequently, net revenue for the entire year was $55.47 million, or 55 million pounds, less than anticipated.
"Following an investigation, we concluded a small group of employees had acted inappropriately and we are taking necessary disciplinary action," Reckitt said in its earnings statement. "We are confident this is an isolated incident specific to these two markets and does not impact our 2024 outlook and medium-term goals."
"Fifty five million pounds is less than 0.3% of our total sales and we've isolated the issue," Chief Financial Officer Jeff Carr said on a call with journalists, adding that "several employees have exited the business."
Reckitt stated that as the people in question had no authority or duty beyond their immediate area, it is certain that this was a localised problem.
"We had to remove our prediction...People had anticipated a little favourable quarter from us, but instead we had a somewhat negative one."
"Disappointed" with the fourth-quarter results and the company's 2024 projection, investors and analysts expressed their disappointment.

According to Tineke Frikkee, portfolio manager at Waverton Asset Management, "volumes were below expectations, price/mix was below consensus, and therefore organic growth was a 1.2% decline compared to the expected increase." In a survey conducted by the company, analysts predicted 1.6% growth.
"Margin guidance was more vague than expected. Reckitt guided to profit growing above sales, but not by how much. Consensus expected a 0.7% margin improvement which may be too high," Frikkee added.
"Reckitt’s results were disappointing all round."
In its infant feeding business in the US, the company also recorded a goodwill impairment of 810 million pounds ($1.02 billion), "reflecting higher interest rates and changes in the regulatory environment".
Reckitt's adjusted operating profit for the entire year decreased to 3.37 billion pounds from 3.44 billion pounds.
"While our performance in the fourth quarter was unsatisfactory, we look to 2024 and beyond with confidence," Kris Licht, CEO, stated.
The company expressed confidence in the upcoming year and projected a 2-4% increase in like-for-like net revenue, with mid-single-digit growth for its hygiene and health portfolios.
Sales of cold and flu medications decreased 2.2% in the fourth quarter at Reckitt's health division, which generates more than 40% of the company's net sales. Volumes decreased in all regions and business divisions of Reckitt.
Consumer firms have raised prices so much in recent quarters due to increased input costs that many consumers have shifted to private label brands, which are cheaper. Additionally, Unilever revealed a "disappointing" quarter due to market share losses.
"Unvarnished communication will be essential for Reckitt and a few other companies in the sector to rebuild investor confidence," said Bruno Monteyne, a Bernstein analyst. "All the talk of product superiority and growing penetration clashes with the numbers."
The largest packaged food manufacturer in the world, Nestle, continues to raise prices, driving some consumers to switch to competing brands. As a result, the firm reported lower-than-expected increase in organic sales for the entire year.
Haleon, a consumer health firm, will release its findings later this week.

Christopher J. Mitchell

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