Shares in FTSE 100 consumer goods giant Reckitt plunged more than 15 per cent on Friday as concerns grew about the firm’s exposure to lawsuits in the US.
On Wednesday, an Illinois jury ordered Reckitt’s unit Mead Johnson to pay $60m (£41.1m) to the mother of a premature baby who died of an intestinal disease after being fed Mead’s baby formula product Enfamil.
The trial was the first of several hundred trials that are set to come to court surrounding the baby formula, and the result was always going to be seen as a test case for the company.
Mead Johnson could still appeal the Illinois court ruling.
More importantly for investors, the cleaning products to baby formula producer hasn’t made a provision for the lawsuits.
In a statement published late Friday afternoon, Reckitt said: “Reckitt/Mead Johnson stands by the safety of our products. We strongly reject any assertion that any of our products cause NEC, a serious gastrointestinal problem that mostly affects premature infants.
“While we continue to offer our deepest condolences to Ms. Watson, we strongly disagree with the jury’s decision to fault Mead Johnson and award damages. We continue to believe that the allegations from the plaintiff’s lawyers in this case were not supported by the science or experts in the medical community. This was underscored during the trial by a dozen neonatologist,” the statement continued.
The company added: “It is important to note that this is a single verdict in a single case and should not be extrapolated.
“This case, and others like it, exclusively involve products used under the strict supervision of neonatologists in neonatal intensive care units and provide lifesaving nutrition options for vulnerable premature infants.”
Reckitt summarized: “We are of course, surprised and deeply disappointed with the verdict and will pursue all options to have it overturned.”
The size of the initial case and the further impending court cases suggest Reckitt could be forced to make a substantial charge and provision for payouts that would take a large chunk out of its bottom line.
Reckitt reported an adjusted operating income of £3.4bn for 2023, disappointing investors with a worse-than-expected performance and lack of growth compared to peers.
Susannah Streeter, head of money and markets, Hargreaves Lansdown said: This ruling has come at a bad time for the Reckitt which had already been struggling with falling volumes across its household goods and hygiene ranges.
“It’s not simply the size of this payout which has caused nervousness, but the fact a long line of other lawsuits are pending, which could mount up to be huge sum for the company,” Streeter added.
“Although nutrition is Reckitt’s smallest division, it’s also been another volume drag, and hitting the headlines for the wrong reasons could also lead to reputational damage. After missing expectations in the fourth-quarter, investors were always going to be highly sensitive to set-backs and this judgement has led to a fresh loss of confidence.’’
The decline has taken the stock back to levels not seen since 2013.