By Richa Naidu
LONDON (Reuters) -Consumer goods group Reckitt on Wednesday missed fourth-quarter like-for-like net sales expectations as an investigation showed some employees had under-reported liabilities in the Middle East, with shares posting their biggest one-day drop since December 1999.
Shares in Reckitt, which owns the Lysol and Strepsils brands, closed down nearly 13%.
Some investors criticised the company's "vague" outlook for this year, as Reckitt shares slumped to their lowest point since March 2020, early in the COVID-19 pandemic.
The maker of Nurofen pain medication and Dettol cleaning products said it recently 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 pounds ($69.47 million) lower than previously expected.
"Following an investigation, we concluded a small group of employees had acted inappropriately and we are taking necessary disciplinary action," Reckitt said in its earnings statement. "We are confident this is an isolated incident specific to these two markets and does not impact our 2024 outlook and medium-term goals."
"Fifty five million pounds is less than 0.3% of our total sales and we've isolated the issue," Chief Financial Officer Jeff Carr said on a call with journalists, adding that "several employees have exited the business."
Reckitt said the individuals 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."
RESULTS AND GUIDANCE DISAPPOINT
Investors and analysts said they were "disappointed" with the fourth-quarter results and the company's guidance for 2024.
"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. Analysts in a company-supplied poll had expected 1.6% growth.
"Margin guidance was more vague than expected. Reckitt guided to profit growing above sales, but not by how much. Consensus expected a 0.7% margin improvement which may be too high," Frikkee added.
"Reckitt’s results were disappointing all round."
The company also took a 810 million pound ($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 pounds, down from 3.44 billion pounds.
"While our performance in the fourth quarter was unsatisfactory, we look to 2024 and beyond with confidence," CEO Kris Licht said.
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. Volumes fell across Reckitt's geographies and business units.
Driven by rising input costs, consumer companies have in recent quarters hiked prices to a degree that many shoppers have turned to cheaper private label brands. Unilever (LON:ULVR) also reported a "disappointing" quarter as it ceded market share.
"For Reckitt, as for a few other companies in the sector, unvarnished communication will be essential in rebuilding investor confidence," Bernstein analyst Bruno Monteyne said. "All the talk of product superiority and growing penetration clashes with the numbers."
Nestle reported full-year organic sales growth below expectations last week as the world's biggest packaged food company continued to hike prices, prompting some shoppers to turn to competing brands.
Consumer health company Haleon (LON:HLN) is set to report results later this week.
($1 = 0.7914 pounds)
($1 = 0.7918 pounds)