It’s expected that after another quarter of declining profits, the new boss at Reckitt Benckiser will need to be poised to do a reset for the company.
We’ve been talking this week about companies that have benefited from organizational resets in the face of market changes. Laxman Narasimhan, the new CEO of the company that makes Lysol and Dettol cleaning products as well as a wide range of other household products will likely be looking at a variety of reset options. The consumer products corporation reported that sales growth was flat in the second quarter which effectively voided the effect of the currency and portfolio shifts that outgoing CEO Rakesh Kapoor had set in place. The company appears to be growing in the opposite way than management had expected – Kapoor announced plans in 2017 to create two independent operating divisions, one including fast moving health brands and the other, the more pedepestrian hygiene and home products. (ref. WSJ). Since that time, it has been expected that the home division would be sold off after things were finalized in mid-2020. However, in 2019, things look quite different – the health brands on which the company was staking its future (and which generate 62% of overall sales) are stagnant, for a variety of reasons such as lower birth rates in China generating fewer diaper sales and competition to the major brands by cheaper start-up alternatives. Thus, since the beginning of 2018, the division has grown an average of 2%, as compared to the 3-5% that had been expected. At the same time, the hygiene brands are doing nicely, spurring a growth of 4% over the past six quarters. Reckitt Benckiser has long been valued for its best-in-class margins, but when Narasimhan, the new CEO, arrives he may be tempted to cut profit expectations. Although that would be regrettable, it would give him the time and opportunity to increase a marketing budget that is currently too low – around 15% of sales – to get the company’s top lines growing again. It’s also likely that the new CEO will decide to hang on to the home division rather than putting it up for sale as earlier anticipated – this would at least provide him added insurance until he gets the health brands division working again.
All the Moving Parts – it’s essential for all the parts of a corporation to work together in support of overall growth goals.