ii view: Reckitt Benckiser chased higher on sales beat

Third-quarter trading to 30 September

• Adjusted Like-for-Like (LFL) revenue down 0.5%

Guidance:

• Continues to expect full-year LFL sales to grow between 1% and 3%

Chief executive Kris Licht said:

“We are on track to deliver our net revenue and profit targets for 2024, with increased investment across our more competitive categories and markets, improving market share performance across our Health and Hygiene portfolios, and a normalising market environment in US Nutrition.

“We are moving at pace on the execution of reshaping Reckitt through sharpening our portfolio, simplifying the organisation and improving shareholder returns."

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ii round-up:

Reckitt Benckiser Group (LSE:RKT) today detailed third-quarter sales that beat City expectations, with the maker of hygiene, health and nutrition products also reiterating its expected estimate for annual sales. 

Tornado damage to nutritional product third-party warehouse operations left sales down 17% during the period, more than offsetting 2.1% and 3.2% improvements for Hygiene and Health sales. That left overall third-quarter like-for-like sales down 0.5%, better than City forecasts for a 1.7% retreat. 

Shares in the FTSE 100 company rose 3% in UK trading having come into this latest news down 12% year-to-date. Fellow consumer goods company Unilever (LSE:ULVR) is up 25% and the FTSE 100 has risen 7%.

Hygiene and Health sales each generated just over 40% of sales in 2023, with Nutrition a balance of just under 17%. During 2024, Reckitt has been dealing with both an internal investigation into its Middle Eastern business as well as litigation regarding an infant nutrition product.  

The company, whose brands include Lysol, Gaviscon, Durex, Finish, Nurofen and Harpic, continues to expect full-year like-for-like net revenue growth of between 1% and 3% compared with 2023’s gain of 3.5%. 

The impact of tornado damage on third-party warehouse facilities in Indiana, USA, is now expected to leave full year nutritional sales down by a high single digit, better than its prior forecast of low double digits.   

Full-year Health and Hygiene sales, as previously predicted, are forecast to grow by a low-end mid-single digit. Reckitt also continues to expect annual adjusted operating profit to grow by more than net revenues. Profit on that basis for 2023 fell 1.9% to £3.73 billion.   

During the summer, Reckitt confirmed that it was considering options for the nutrition business and that it would offload a portfolio of homecare brands by the end of 2025. 

It will provide further details on its revamped operating model and future targets at its annual results late February.  

ii view:

Reckitt Benckiser was formed in 1999 via the merger of Reckitt Coleman and Dutch concern Benckiser. Today, and headquartered in Slough, it employs around 40,000 people globally. In 2023, the USA was its biggest generator of revenues at 31%, with the UK coming in at 6% and other countries the balance of 63%.  

For investors, legal challenges at its nutrition business and the potential cost of litigation settlements continue to overshadow. Consumer spending remains pressured by elevated borrowing costs, with some consumers likely trading down to cheaper supermarket brands. Operational challenges previously included inappropriate employee actions, while costs generally for businesses and including wages are now elevated.  

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More favourably, potential sales of nutrition and home care products would leave it more focused on health and core hygiene. Investments in enhancing product superiority are ongoing. Group net debt fell 9% year-over-year at the interim results to £7.3 billion, while a forecast dividend yield in the region of 4% is not to be ignored. 

In all, strong brands and management initiatives to enhance performance offer hope. There's also an interesting chart, with the shares seemingly drawn toward the pre-slump level of 5,250p in March, known as 'filling the gap'. That said, investors must be prepared for litigation challenges and a failure to return to former levels of constituent performance.

Positives: 

• Diversity of product type and geographical location
• Focus on shareholder returns

Negatives:

• Uncertain economic outlook
• Many supermarket own brands now compete

The average rating of stock market analysts:

Strong hold