Heavy Flu Season Helps Reckitt Beat Profit Forecasts
An unusually severe cold and flu season in the United States helped drive full-year profits higher at Britain's Reckitt Benckiser, maker of Strepsils throat lozenges and Mucinex decongestant.
The intensity of the North American flu season pushed up demand across the board for hospitals, pharmacies and the makers of cold remedies.
"The cold and flu season was a good one, the buying was very good and clearly there has been some benefit from this," Chief Executive Rakesh Kapoor told journalists following the company's results on Wednesday.
Reckitt's sales in Europe and North America, where many firms have struggled with sluggish consumer demand, grew 3% in the fourth quarter, traditionally the peak cold and flu season. Full-year earnings per share were up 7% and ahead of forecasts.
Kapoor said the company would target revenue growth of between 5 and 6% for 2013, including acquisitions and disposals announced to date, with margins to be maintained at 2012 levels.
This compares with growth, excluding non-core pharmaceuticals, of 5% over the past year, which accelerated to 6% in the final quarter.
"With the positive impact of the strong flu season flowing into Q1 2013, both in the Health and Hygiene categories, we believe 2013 has started well for Reckitt," analysts at Shore Capital said.
"We expect the market to respond positively to today's results, whilst recognising they may be underwhelmed by management's full year targets, which may ultimately prove cautious."
Emering market shift
The company, which also makes household cleaning products such as Cillit Bang, has been shifting its focus to the fast-growing health and hygiene sector, with brands such as Durex condoms, Gaviscon indigestion treatment and Dettol disinfectant. It is also targeting emerging markets.
Reckitt said it wanted half of its net revenue in its core business to come from emerging markets by 2015, a year earlier than previously planned, while its health and hygiene products would account for 72% of net revenue.
Health & hygiene makes up 69% of revenue currently and emerging markets 44%.
The group has already made a string of acquisitions to expand in these areas.
At the end of last year, Reckitt saw off competition from Germany's Bayer to secure U.S. vitamin maker Schiff Nutrition for $1.4 billion, gaining access to the vitamin and supplement market for the first time.
On Tuesday, it announced it a $482 million licensing deal with Bristol Myers-Squibb for Latin American health brands such as cough reliever Naldecon and painkiller Tempra, with an option to buy after three years.
On Wednesday, Kapoor said Reckitt had bought a "modest-sized" traditional Chinese medicine firm, without giving financial details.
The purchase of Oriental Medicine Company - which sells leading sore throat brand Manyanshuning in China - would help Reckitt create a healthcare platform in the country, he said.
The company's full-year adjusted earnings per share was 264.4 pence, up 7%, and ahead of Thomson Reuters I/B/E/S estimates of 246.8 pence and a company-supplied forecast of 249 pence.
