In recent days I have looked at why I believe Reckitt Benckiser Group (LSE: RB) (NASDAQOTH: RBGLY.US) is poised to deliver stunning investor returns (the original article can be viewed here).
But, of course, the world of investing is never black-and-white business — it take a confluence of views to make a market, and the actual stock price is the only indisputable factor therein. With this in mind I have laid out the key factors that could, in fact, push Reckitt Benckiser’s investment appeal to the downside.
Suboxone problems worsening
The loss of exclusivity for Reckitt Benckiser’s Suboxone heroin alternative tablets back in 2009 has weighed heavily on the company’s RB Pharmaceuticals division. Indeed, the department posted an 7% net revenue decline during 2013, to £777m, as the entry of generic rivals in the US — on top of the withdrawal of its own Suboxone tablets — ate into turnover.
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And RB Pharmaceuticals sales slipped 19% during October-December alone, indicating that the impact of rising competition on the firm’s Suboxone film product is accelerating with gusto.
Reckitt Benckiser launched a strategic review of the unit back in October, but until a deal is concluded the beleaguered division, responsible for 10% of operating profit, looks likely to become more problematic for the firm.
Food resurgence not on the menu
But RB Pharmaceuticals is not the only problem area for Reckitt Benckiser, with troubles at its Food division also worsening in recent months. Although the business saw net revenues edge 1% higher during 2013, sales actually dropped 2% during the final three months of the year.
The company noted that “macro conditions surrounding the food category remain unchanged with weaker markets and lower inflation,” and with the vast majority of revenues here sourced from Europe and North America, weak consumer spending power in these regions is likely to result in further pressure here.
Paltry payouts on the horizon
A backdrop of slowing earnings growth over the past five years is expected to weigh on previously-robust dividend growth over the next couple of years, and Reckitt Benckiser is anticipated to post its first annual drop for many years in 2014.
It is true that the firm’s progressive dividend policy is expected to drive last year’s total payment of 137p per share to 139.4p and 146.1p in 2014 and 2015 respectively. Still, these payments only produce yields of 2.9% for this year and 3% for 2015, short of a forward average of 3.2% for the complete FTSE 100.
