The shine comes off Reckitt Benckiser figures

Shares in the Lemsip, Cillit Bang and Nurofen maker were the biggest faller on the FTSE 100 after it published disappointing fourth quarter results and the downbeat forecast.

But Reckitt, which bought Durex condoms and Scholl sandals maker SSL late last year, insisted it would outperform flat markets during 2011 and is targeting growth of four per cent.

Chief executive Bart Becht said Reckitt would offset hefty input cost increases with selective price rises and cost savings. However, he faces tough markets in Europe and North America, which together account for nearly three-quarters of group sales.

“We are facing two worlds, Western Europe and North America are not showing much growth while Eastern Europe and other developing areas are growing well,” he said.

At one point yesterday Reckitt’s shares were down 7.4 per cent, making it the top FTSE 100 faller. Its shares regained some of their losses to close the day down 175p at 3270p.

“Historically we saw an average (market) growth rate of three to five per cent,” added Mr Becht. “I would expect for 2011 no or at best low (market growth). We’re not independent from what happens out there.”

Reckitt joined rivals in cautioning over soaring input costs for crude oil, plastics, palm oil and rubber, plus “heavy” competition within the industry. Consumer products firms have been hit by soaring commodity prices, with Imperial Leather soap maker PZ Cussons revealing rising palm oil prices were hitting soap prices.

Reckitt said its profit margins were already under pressure from increased promotional spending in the fourth quarter.

“We’re seeing a materially adverse input cost environment,” said Mr Becht, the FTSE 100’s best paid chief executive in 2009.

He defended the group’s performance in 2010, against no market growth, and said the group has consistently outperformed over the past decade.

“We delivered an industry-beating performance in 2010 and target the same in 2011. Some people believe we can walk on water. Well, we cannot walk on water,” he said.

Reckitt posted a fourth quarter earnings rise of 14 per cent to 69p per share, below a consensus of 73.7p.

Operating profits over the quarter slipped three per cent to £602m on a constant currency measure.

On an annual basis, Reckitt posted a 13 per cent rise in 2010 pre-tax profits to £2.14bn.

Strong growth in developing markets helped it to offset a weak performance in Europe – its biggest sector – where net revenues fell one per cent.

Its 2010 dividend rose 15 per cent to 115p per share.

Reckitt has a personal care manufacturing site in Hull, where it makes Gaviscon heartburn medicine, Nurofen pain relief tablets for children, Lemsip cold remedy and Dettol cleaner. Together with its research and development site in the city, it employs about 500 staff in Hull.

Investec analysts said: “A fourth- quarter margin miss and cautious guidance testify in our view to the gross margin pressures now afflicting both Reckitt and the wider foods and health and personal care sector.”

Analyst Andrew Wood at brokerage Sanford Bernstein said: “It is not often we can say this about Reckitt, but the results were light, and the 2011 guidance was even lighter.”

James Edwardes-Jones at Execution added: “The fourth quarter was not a good quarter by Reckitt’s exalted standards... or frankly by normal consumer staples standards.”

Keith Bowman, analyst at Hargreaves Lansdown Stockbrokers, said Reckitt had “fallen victim to high expectations and increased uncertainties”.

Rivals such as Unilever were raising their game. “In all, the group’s faultless execution record is being slowly overshadowed by building uncertainties.”

POWER PRODUCTS DRIVE PROFITS

RECKITT Benckiser said its results would continue to be driven by its “powerbrands”, which are responsible for the bulk of its sales.

Its 19 powerbrands include Air Wick air freshener, Harpic toilet cleaner and Calgon limescale remover.

Chief executive Bart Becht said the group’s 2010 results “are very much driven by the Powerbrands which represent close to 70 per cent of the total group”.

Brand developments planned by Reckitt Benckiser for this year include a re-launch of the Cillit Bang cleaner brand and the launch of Nuromol, a tablet combining ibruprofen and paracetamol.