By Saabira Chaudhuri
LONDON--Reckitt Benckiser Group PLC is splitting its business
into two separate divisions, the latest move by a consumer-goods
giant to address an industry-wide downturn.
Chief Executive Rakesh Kapoor will continue to preside over the
entire company, but he will also run a new consumer-health
division, which will include brands like Durex condoms and the
recently acquired Mead Johnson baby-food division. After the
restructuring, which will take effect by Jan. 1, the unit will make
up about 60% of group sales, which last year totaled GBP9.89
billion ($13.04 billion).
A separate division--to be run by one of Mr. Kapoor's current
deputies--will include Reckitt's home-and-hygiene products, like
Lysol, Finish dishwasher tablets and Woolite.
The U.K.'s Reckitt and its rivals, including Procter &
Gamble Co. and Unilever PLC, are struggling with stalling sales as
consumer tastes in many key markets change fast. Shoppers are
gravitating toward smaller, local products and away from the
mega-brands these companies have relied on for sales growth for
decades.
Sales growth at the world's packaged-foods companies slowed to
1.1% last year from 2.4% in 2013, according to Morgan Stanley.
Home-care growth fell to 1.3% from 1.5%, while beauty and personal
care dropped to 1.7% from 2.2%.
Until recently, benign inflation in many parts of the world made
it difficult to increase prices to make up for lower volumes.
Volatility in emerging markets like India and Brazil has further
pressured sales.
"We have many more competitors to deal with now. Channels have
changed," said Mr. Kapoor in an interview. "Therefore, this
one-size-fits-all does not work. We need to create more focus and
expertise."
To arrest the decline, many industry leaders are taking
action.
Earlier this week, P&G narrowly won a proxy fight with
activist investor Nelson Peltz, who has called on it to restructure
to address these headwinds. Nestlé SA recently bowed to pressure
from activist investor Dan Loeb and set a formal profit margin
target. The packaged foods giant is also selling its U.S.
confectionery arm. Unilever split off its spreads business into a
separate unit, with its own management team, before earlier this
year saying it would consider selling the unit. That decision came
after Unilever rejected a $143 billion bid by Kraft Heinz Co.,
which triggered a number of moves by Unilever to appease
investors.
Reckitt--one of the world's largest consumer-goods
companies--spun off its pharmaceutical division in 2014. Earlier
this year, it sold French's mustard and the rest of its food unit
to McCormick & Co.
Mr. Kapoor said Reckitt has no plans to sell or spin off the
health-and-hygiene unit, or any of its current businesses. He said
his primary aim is to focus management attention on all the brands,
to jump start growth in both divisions.
Still, analysts saw the move as a possible first step toward
more drastic measures.
"This new structure could be the prelude to a split of the
business or a sale" of the home-and-hygiene businesses, said
Liberum analyst Robert Waldschmidt.
Reckitt has a market capitalization of GBP49.5 billion. It is
unclear what valuations the two divisions would command as
stand-alone companies, but both would rank as sizable players.
Amid the broader upheaval in the sector, Reckitt seemed to be
navigating the headwinds relatively well. Until last year, it was a
stock-market darling that enjoyed strong growth and chunky profit
margins. Mr. Kapoor, one of the best paid CEOs among London-listed
blue chips, won a reputation for keeping costs under control.
On Wednesday, though, Reckitt reported the latest in a string of
disappointing results.
Third-quarter comparable sales fell 1% from a year earlier,
missing analysts' forecasts. Reckitt also reduced its annual sales
guidance for the second time this year, saying it now forecasts
flat sales, compared with a previous estimate of 2% growth.
Reckitt is battling through the same headwinds as its rivals but
has also suffered a series of company-specific setbacks. A
Scholl-branded foot file, made for the shower, flopped. A
humidifier disinfectant that Reckitt bought in South Korea has been
blamed for dozens of deaths, triggering a consumer backlash there.
And it was hit harder than most in a far-reaching cyberattack,
called Petya, earlier this year.
The restructuring, announced Wednesday, is geared toward
addressing the slowdown. Mr. Kapoor said designated management
teams would be able to better focus resources and help both
divisions grow, even as they share functions such as procurement
and financial services. Mr. Kapoor said the home-and-hygiene brands
have previously been neglected, compared with the higher-growth
consumer-health arm, a trend that would have worsened with the
acquisition of Mead Johnson.
Mr. Kapoor said consumer-health brands' route to market is very
different to those of Reckitt's other brands. Acquiring Mead
Johnson makes now "the perfect moment" to split out the
operations.
Mr. Kapoor has long said he wants to build Reckitt into a
consumer-health-focused giant. The restructuring comes at a time
when several attractive consumer-health assets have come on the
block. Pfizer Inc. and Germany's Merck KGaA have both said they are
conducting strategic reviews that could lead to a sale or spinoff
of their consumer-health businesses. On Wednesday, Mr. Kapoor said
it is too early to say whether Reckitt will bid for these, but that
he is watching the process carefully. In 2015, he said if Pfizer's
consumer health arm became available he would be very
interested.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
October 18, 2017 10:28 ET (14:28 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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