ii view: Reckitt Benckiser results include a miss and a beat

Fourth-quarter and full-year results to 31 December

• Fourth-quarter adjusted like-for-like (LFL) revenue up 4.6%
• Total full-year net revenue down 3% to £14.17 billion
• Full-year adjusted earnings up 7.9% to 349p per share
• Final dividend of 121.7p per share
• Total 2024 dividend up 5% to 202.1p per share
• Net debt up 8.5% to £7.91 billion

Guidance:

• Expects core business LFL sales growth for the 2025 year ahead of between 3% and 4%
• Expects core business LFL sales growth for 2026 onwards of between 4% and 5%

Chief executive Kris Licht said:

“We are reshaping Reckitt into a more efficient, world-class consumer health and hygiene company, focused on a portfolio of high-growth, high-margin Powerbrands. 

“Strengthened execution in key markets led to market share improvements in Health and Hygiene with our performance further supported by impactful innovation platforms, increased investment in our brands and R&D and initial savings from our Fuel for Growth programme.”

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ii round-up:

Reckitt Benckiser Group (LSE:RKT) today detailed fourth-quarter sales that missed City forecasts, but the owner of brands including Nurofen Gaviscon, Finish, and Harpic reported a profit that exceeded expectations because of accelerated cost savings. 

Adjusted fourth-quarter LFL sales to 31 December rose 4.6% year-over-year, below analyst hopes for growth of 5.3% and hindered by low demand for cold and flu remedies. Full-year adjusted 2024 earnings up 7.9% to 349p per share exceeded hopes of 316p. 

Shares in the FTSE 100 stock fell in early UK trading then recovered to a gain of 2% having come into these latest results up 7% year-to-date. That’s similar to the FTSE 100 index itself as well as shares for rival and maker of pain killer Advil, Haleon (LSE:HLN).   

Reckitt operates across the three divisions of Hygiene, Health and Nutrition, with management considering options for nutrition under an ongoing transformation plan as well selling some Hygiene or homecare brands.

Increased investment and product innovation helped 55% of Health and Hygiene brands hold or gain market share during 2024, up from 46% and 47% respectively in 2023. 

Reckitt forecasts core business LFL sales growth for the 2025 year ahead of between 3% and 4%, rising to growth of 4-5% from 2026. 

A £1.3 billion share buyback programme during 2024 helped push Reckitt’s net debt up 8.5% to £7.91 billion. 

A final dividend of 121.7p per share, payable to eligible shareholders on 29 May, takes the total 2024 payment up 5% to 202.1p per share. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the numbers, highlighting Reckitt as a ‘top pick.’ A first-quarter trading update is scheduled for 23 April. 

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. Hygiene accounted for most sales during 2024 at 43%, followed by Health at 42% and Nutrition the balance of 15%. Geographically, the combined Europe and Australasia generated most sales during 2024 at 34%, followed closely by developing markets at 33.5% and North America the balance of 32.5%.   

For investors, sales for Nutrition fell 7.3% for the year, hindered by both operational and litigation challenges. Consumer spending remains pressured by elevated borrowing costs, with some consumers likely trading down to cheaper supermarket brands. There have been operational challenges and there are generally higher costs for businesses, including wages.  

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On the upside, potential sales of nutrition and home care products would leave the company more focused on health and core hygiene products. Investments in enhancing product superiority are ongoing. An estimated 10% discounted valuation to the broader EU staples sector suggests the shares are possibly undervalued, while a forecast  dividend yield of around 4% is not the be ignored. 

In all, and while Reckitt is not yet back firing on all cylinders and risks clearly remain, a consensus analyst fair value estimate above £57 per share does point to longer-term hope. 

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:

Buy