Reckitt reset under new CEO, and Whitbread sees first half profit fall

“Ahead of yet another day which is being billed as pivotal in the Brexit saga, sterling is trading higher, helping to keep the FTSE 100, dominated as it is by overseas earnings, in check,” says AJ Bell Investment Director Russ Mould.

“Whether MPs will actually provide some clarity on the UK’s exit from the EU by approving the withdrawal agreement bill remains to be seen."

Reckitt Benckiser

“Reckitt Benckiser’s new CEO Laxman Narasimhan looks like he is taking advantage of the honeymoon period enjoyed by incoming chief executives as he slashes full year sales guidance.

“Kitchen sinking or resetting expectations is a well-rehearsed path in the corporate world although in truth Narasimhan, who joined in September, may have had little choice but to scale back sales expectations after a pretty ropey third quarter.

“Reckitt has been struggling for a while – evidenced by the fact this is the second downgrade so far in 2019.

“At least Narasimhan has the decency to sound hacked off about the situation “prioritising execution and operational performance as a matter of urgency”. Which could be code for knocking a few heads together.

“The health business is the culprit for the Durex and Dettol maker – with weak sales of cold and flu medicine in the US and baby products in China.

“Where Narasimhan is making a clear choice is to sacrifice margin in the short-term to invest in the company’s brands. This is probably a good move given the widespread perception that spending on its brand portfolio has been too modest in recent years.

“A company like Reckitt is very reliant on its brand power which needs to be replenished by marketing spend and innovation.

“The company also faces the challenge of a structural shift in shopping habits away from big brands.”

Whitbread

“The sale of its Costa Coffee business to Coca-Cola always meant Whitbread’s Premier Inn hotels would be exposed to greater scrutiny.

“So far the business has been uncomfortable with the spotlight. The nature of the operation in the UK, which has a bias towards the regions, is seeing the company lag the wider market. Little wonder first half profit fell.

“The loss of business travel, particularly regionally, is really hurting Premier Inn. Sending staff away on business is a soft option to scale back when firms are steeling themselves to cope with the current uncertainty.

“However, there were some brighter spots as the company looks to execute on its long-term strategy of exploiting its position as the leading player in the UK hotels market and replicate its historic success in Germany.

“To that end, the company is continuing to add German hotel rooms at a decent lick and is seeing positive performance from a new hotel in Hamburg.

“However, its ability to build on this success could be impacted by the economic slowdown in the country.

“Investors will hope innovations such as Premier Plus higher specification rooms can pay off for the business which at least has a strong balance sheet to weather any storms thanks to the proceeds from the Costa deal.”

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