Reckitt Benckiser Warns on Mature Markets as Profit Rises

    By Simon Zekaria 
 

LONDON--Reckitt Benckiser PLC (RB.LN) Monday warned on a tough outlook for consumer spending in mature markets as it posted a slight rise in profit, helped by demand for household and medical products in emerging markets.

"While the consumer and competitive environment in Europe and North America remains challenging, we are doing the right things for the long term," said Chief Executive Rakesh Kapoor.

The U.K.-based maker of Air Wick air freshener, Dettol disinfectant and Neurofen pain relief tablets said net profit in the six months to June 30 rose 2.6% to GBP779 million ($1.22 billion) from GBP759 million a year earlier. Revenue in the period rose to GBP4.67 billion from GBP4.62 billion.

Second-quarter revenue fell 1.1% to GBP2.31 billion from GBP2.34 billion, missing market expectations from a company poll of GBP2.35 billion. However, like-for-like revenue rose 4%.

Unilever NV (UN) last week warned consumer companies are operating in a deteriorating global economy as it reported a small drop in net profit, while U.S.-based market leader Procter & Gamble Co. (PG) has issued two profit warnings this year, blaming weak demand in mature markets where spending is squeezed.

Rising middle-class populations with increased spending power in countries like Brazil, India and Indonesia are driving demand for high-margin health and hygiene goods. In contrast, Western economies, particularly in Europe, are seeing a cutback in consumer purchases amid weak economic conditions.

Earlier this year, Reckitt announced plans to merge its North American and European operations in a bid to focus investment and resources in emerging markets. Its goal is to generate half of its sales in developing economies, excluding food and pharmaceuticals, by 2016, up from just over 40% currently.

The move is aimed at reversing a recent slowdown in business. Last year saw the departure of CEO Bart Becht, the man credited with delivering consistent profit growth and more than quadrupling the company's share price since taking over in 1999. His replacement, Mr. Kapoor, is now tasked with guiding the company through an increasingly turbulent market.

Slough, England-based Reckitt Benckiser, which makes products as diverse as French's yellow mustard and Suboxone, a heroin addiction treatment, is aiming for comparable full-year revenue, excluding its pharmaceutical operations, to exceed forecast market growth of 1% to 2% by two percentage points, and to sustain this trajectory in the medium term. Excluding pharmaceuticals, it aims to maintain its operating margins.

It recommended an interim dividend of 56 pence a share, up 2% year-on-year.

Reckitt Benckiser shares closed Friday at 3542 pence, valuing the company at GBP25.61 billion, up 11% in the year to date.

Write to Simon Zekaria at simon.zekaria@dowjones.com

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