- Growth in core brands accelerates
- Full-year guidance upgraded
- New £1 billion buyback announced
Reckitt Benckiser (RKT) was the biggest FTSE 100 gainer on 24 July, the shares rallying 10% to £55.46 after the consumer health and hygiene powerhouse upgraded its full-year guidance following a strong first-half performance from its ‘Core Reckitt’ business, which includes the Nurofen, Gaviscon, Dettol and Durex brands.
Reaping the benefits of CEO Kris Licht’s Fuel for Growth turnaround strategy designed to simplify the business, sharpen its focus and reduce costs, Reckitt also launched a fresh £1 billion share buyback to the delight of long-suffering investors.
The Slough-based company is cleaning up its portfolio, having agreed to sell a majority stake in its Essential Home business, which includes the Cillit Bang, Calgon and Air Wick brands, to private equity investor Advent for $4.8 billion (£3.6 billion) in a deal that will see disposal proceeds returned to shareholders through a special dividend.
HEALTHY HALF
While like-for-like sales in the non-core Essential Home arm fell 6.5% in the half to June, like-for-likes in Core Reckitt grew 4.2%, with growth accelerating to 5.3% in the second quarter led by emerging markets.
‘Our new operating structure has sharpened our focus, delivering improved execution with continued market share gains and volume momentum,’ commented CEO Kris Licht, as he reported a 7% hike in Reckitt’s half-year operating profits to a better-than-expected £1.71 billion.
‘We delivered excellent growth in emerging markets and navigated a challenging consumer environment in our developed markets. Our Fuel for Growth programme is ahead of plan, reducing fixed costs, fuelling brand investments and expanding our platform for sustained margin and earnings growth.’
Licht conceded there is still much work to do, but he stressed ‘the journey to fundamentally reshape Reckitt into a more efficient, world-class health and hygiene company is well underway and reflecting that we are upgrading our like-for-like net revenue guidance for 2025.’
For the full year, the company is now targeting group like-for-like growth of 3% to 4%. That includes like-for-like growth north of 4% in Core Reckitt, up from previous guidance for growth in the 3% to 4% range.
The company also upgraded its 2025 guidance for troubled infant formular business Mead Johnson Nutrition, where sales dropped 3.3% in the first half. Reckitt now expects low-to-mid single digit like-for-like growth from Mead Johnson, an improvement on earlier guidance for low single digit growth, as the business continues to recover from the impact of July 2024’s Mount Vernon tornado.
TEXTBOOK DELIVERY
Describing Reckitt’s latest results as ‘textbook delivery’, Jefferies commented: ‘The group beat on organic sales in the second quarter is led by the core operation (which is the focus). Emerging market momentum is now well established, with good growth even in tougher markets for many peers (China and Latin America). The margin guide reiteration is made alongside a clear uplift in brand investment.’
AJ Bell investment director Russ Mould observed that having recently announced the sale of its Essential Home portfolio, Reckitt has now issued an ‘eye-catching upgrade’ to revenue guidance for its core brands.
‘The merits of focusing on its ‘Powerbrands’ is evident in the numbers with them delivering meaningful growth at a strong margin while the Essential Home component is finding life harder going,’ said Mould.
‘Reckitt lauds the benefits of its more focused approach which means it is pitching the brands that really matter more successfully and thereby achieving market share gains. The big question for management is what happens with the Mead Johnson infant nutrition business, with that question only likely to increase in volume given the weak performance, notwithstanding a slight improvement in the outlook. The litigation issues which continue to loom are not helpful in terms of achieving an exit.’
Mould added: ‘Reckitt’s significantly better performance in emerging markets is telling. In the developed world the company faces increasing pressure from unbranded alternatives. However, in developing countries these alternatives do not exist in any meaningful sense and therefore the company’s trusted brands are in demand with those consumers who can afford them.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.
