On Wednesday, Reckitt, a consumer goods group that owns the Lysol and Strepsils brands, missed its fourth-quarter like-for-like net sales expectations. The company’s shares experienced their largest one-day drop since December 1999 after an investigation revealed that some employees had under-reported liabilities in the Middle East. Reckitt’s shares were down by more than 12% on Wednesday.
The company’s “vague” outlook for this year was criticized by some investors as Reckitt’s shares plummeted to their lowest point since March 2020, early in the COVID-19 pandemic. The company, which makes Nurofen pain medication and Dettol cleaning products, said it had identified “an understatement of trade spend in two Middle Eastern markets related to the fourth quarter and prior quarters of 2023.” As a result, full-year net revenue was £55 million ($69.47 million) lower than previously expected.
In its earnings statement, Reckitt said, “Following an investigation, we concluded a small group of employees had acted inappropriately and we are taking necessary disciplinary action. We are confident this is an isolated incident specific to these two markets and does not impact our 2024 outlook and medium-term goals.” Chief Financial Officer Jeff Carr said on a call with journalists, “Fifty-five million pounds is less than 0.3% of our total sales, and we’ve isolated the issue. Several employees have left the business.”
Reckitt said the individuals involved did not have any oversight or responsibility outside of their geography, so it is confident this was a limited issue. “We’ve had to take down our forecast… People were expecting our quarter to be slightly positive, and we’ve come in slightly negative.” Analysts in a company-supplied poll had expected 1.6% growth, but “volumes were below expectations, price/mix was below consensus, and therefore organic growth was a 1.2% decline compared to the expected increase,” said Waverton Asset Management portfolio manager Tineke Frikkee.
Reckitt also took a £810 million ($1.02 billion) goodwill impairment in its infant nutrition business in the United States “reflecting higher interest rates and changes in the regulatory environment.” Reckitt’s full-year adjusted operating profit was £3.37 billion, down from £3.44 billion.
CEO Kris Licht said, “While our performance in the fourth quarter was unsatisfactory, we look to 2024 and beyond with confidence.” The company said it is confident for the year ahead and expects like-for-like net revenue growth of 2-4%, with mid-single-digit growth for its health and hygiene portfolios. Sales volumes at Reckitt’s health business, which contributes over 40% of the company’s net revenue, fell 2.2% in the fourth quarter, as fewer people bought cold and flu medication