Reckitt Benckiser (RB.) reported slower fourth-quarter sales growth of 1%, but revenues grew as the firm was able to raise prices amid challenging market conditions.
Reckitt achieved sales growth of around 5% across its product categories, except in the portfolio segment of non-core products, which represents just 6% of revenue and suffered a 16% decline in sales.
The firm's products include a variety of household product and personal-care brands, such as Calgon, Cillit Bang, Finish, Durex and Dettol, many of which have the number-one or -two position in their categories. The firm operates in 60 countries and sells products in more than 200, garnering just north of 40% of sales from emerging markets.
Like-for-like sales were also solid across the geographical regions, but Reckitt benefited from some new distribution in China, and in line with other management commentary in recent weeks, the company reported seeing more slowing of market growth in emerging markets in the fourth quarter. We expect sales growth in the LAPAC (Latin America, North Asia, South and South East Asia, Australia and New Zealand) segment to slow slightly in the first half of the 2015 tax-year. Similarly, the company noted a slowdown in Russia, which may be partially offset by a one-time first-quarter boost from the Olympics in Sochi.
Reckitt reported gross margin expansion of 150 basis points in fiscal 2014 over the previous year, driven by favourable mix and pricing, cost optimisation and some own brand discontinuation. We regard the savings from cutting costs as a potential way to strengthen the company's competitive positioning this fiscal year, and the benefit to the margin may not be permanent.
However, the ability to raise prices amid slowing growth in emerging markets and in an intensely competitive environment in mature markets demonstrates that Reckitt's narrow economic moat remains intact. Furthermore, the discontinuation of private-label products should provide a permanent boost to profitability going forward.
European firms Reckitt & Coleman and Benckiser combined in 1999 to form Reckitt Benckiser.