Reckitt Benckiser, the owner of brands including Durex and Nurofen, missed 2017 profit expectations and said tough trading in developed markets and rising commodity costs were set to continue.
The consumer goods group reported higher sales in the final three months of last year on Monday, in line with expectations, and forecast an increase for this year as it looks to move on from a turbulent 2017.
It pointed to an improved performance at its recently acquired Mead Johnson baby formula business, and raised its forecast for cost savings from that deal to about $300m (£215m) from the $250m announced at the time of the acquisition.
However, 2017 earnings at the company, which has struggled with the weakest performance in its history, missed expectations and its profit margins declined, hurt by a tougher pricing environment in developed markets and increased commodity costs.
It forecast both of those issues to continue in the near term. It declined to give a margin target for 2018, but said the year would be affected by the restructuring of its business into two units, which it completed in January, and the integration of Mead Johnson.
Reckitt’s shares were down 6.6% at about 2pm UK time on Monday, the biggest faller on the FTSE 100.
Like-for-like sales rose 2% in the fourth quarter, helped by a strong flu season. That was roughly in line with analysts’ average estimate.
But the growth was driven more by volume than pricing. Reckitt said pricing power tailed off over the past year, with large retail customers under pressure from online competitors. It said the pressure was worse in its hygiene business than in health.
“We absolutely do not see this as a long-term pressure, but we also do not see it going away in the very short term,” its chief financial officer said.
Mead Johnson sales rose 3%, their second quarter of growth after nine quarters of decline.
Reckitt was also less affected by certain one-time items, such as a failed product launch and a safety scandal in South Korea, which hurt sales in earlier quarters. It was also hit by a cyber-attack last year.
Like-for-like sales were flat for the full year, in line with the company’s forecast.
For 2018, the company forecast revenue up 13-14%, with like-for-like sales up 2-3%. It stood by its medium-term target for “moderate operating margin expansion”.