Shares in household and personal goods producer Reckitt Benckiser (RKT) topped the FTSE leader board with a 5.5% gain to £57.71 after the firm posted better than expected third quarter sales and raised its full year guidance.

Group like for like sales for the quarter to the end of September rose 3.3% to £3.275 billion against forecasts of a 0.7% fall to £3.057 billion, thanks to a 1.6% increase in volumes and a 1.7% increase in pricing and product mix.

This compares with a 15.3% increase in like for like revenues in last year’s third quarter, so it wasn’t just the product of a weak prior year comparison.

Moreover, on a two-year ‘stacked’ basis as the firm calls it, net revenues were up an impressive 18% which suggests the company has seen a structural increase in demand rather than just a one-off pandemic boost as sceptics had suggested.

CORE STRENGTHS

The firm's two core divisions of Hygiene and Health both posted stronger than expected sales growth thanks to a balance of higher volumes and higher prices.

Underlying sales in Hygiene sales rose 2.9% to £1.449 billion against forecasts of a 0.9% fall to £1.4 billion driven by higher sales of Airwick, Finish and Vanish across most major markets and a recovery in Lysol sales after a spike in Covid cases in North America mid-quarter.

Health sales rose 3.6% to £1.186 billion against forecasts of a 0.4% fall even with the disposal of the Scholl business which crimped growth by 1.2%.

The firm was able to push through good price rises in developing markets and its over the counter medicines business saw a strong increase in sales as cold and flu cases picked up during the quarter.

The smaller Nutrition unit also contributed with a 3.8% improvement in underlying sales thanks to big price hikes in infant formula and child nutrition products in the US and Canada which offset lower volumes.

ONWARDS AND UPWARDS

Thanks to a better than expected third quarter, the firm raised its full year underlying revenue growth estimate to between 1% and 3% and said it was on track to end next year with circa 5% like for like growth.

It also maintained its operating profit margin target of around 23%, in spite of 10% inflation in the cost of materials such as surfactants, paper and packaging, as well as higher ocean freight rates.

Analysts at JPMorgan reiterated their buy recommendation and £85 price target on the stock. The average share price target among the 21 firms covering the company is £70 according to S&P Market Intelligence.

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Issue Date: 26 Oct 2021