Reckitt Benckiser has initiated a strategic review of its Mead Johnson infant-formula business, considering it as “non-core” within the nutrition division. The acquisition of Mead Johnson in 2017 for $17.9bn positioned it as the smallest revenue earner compared to the hygiene and health units.
The UK group announced its intention to “seek to exit” certain homecare brands like Air Wick and Calgon while adjusting its full-year organic growth outlook range by one percentage point. While CEO Kris Licht did not commit to exiting Mead Johnson and nutrition, he did not rule out a potential sale. However, analysts pointed out that ongoing litigation in the US related to health risks from consuming Enfamil Premature 24 infant formula might hinder any disposal plans.
Reckitt stated, “The Mead Johnson Nutrition business, with its market-leading brands of Enfamil and Nutramigen, is now non-core and Reckitt will consider all strategic options to maximize shareholder value.” Nutrition was not emphasized in Licht’s general statement.
“The Mead Johnson strategic review continues to be limited for now, in our view, given the litigation uncertainty that is likely to persist until the earliest,” remarked David Hayes, an analyst at US investment bank Jefferies.
Barclays analysts led by Warren Ackerman suggested that the restructuring measures are likely to counter any disappointment caused by the trimmed topline guidance. They also highlighted the challenges posed by the litigation issues surrounding infant formula in potential asset sales.
Reckitt faces a potential liability of up to £2bn ($2.5bn) in damages associated with the NEC disease linked to premature babies. A US court awarded $60m in damages to a mother in a case involving Enfamil Premature 24. The company has disclosed that a trial on this matter is scheduled to commence later this year.
The UK company’s growth downgrade is attributed to a recent tornado that damaged Mead Johnson’s baby food warehouse in Virginia. The nutrition division reported a 9% decrease in sales during the first half of the year, contributing to an overall 0.8% rise in group revenue.
Reckitt’s share price remained steady amidst these developments. Infant-formula sales are expected to decline by a low double-digit percentage this year, reflecting the impact of recent events.
In conclusion, Reckitt’s strategic review and restructuring efforts aim to solidify its position as a leading consumer health and hygiene company, backed by long-term value creation for shareholders. Despite the challenges, the company seeks to navigate through these obstacles and enhance its growth and margin profiles.
