28 February 2024
If you are covering Reckitt Benckiser’s latest results, please see the following comment from Chris Beckett, head of equity research at Quilter Cheviot:
"Reckitt Benckiser's latest results have fallen short of market expectations in both sales and profit margins. The CEO Kris Licht openly acknowledged the unsatisfactory performance, pointing to a fading pricing benefit. This quarter's results were also impacted by several one-off events, including a delayed cold and flu season and a rapid decline in the previously gained market share from Abbott's baby formula fiasco last year. Particularly disappointing was the performance in North America and, more specifically, in the nutrition division.
"Despite these challenges, there are some minor silver linings. The company reported an increase in gross margin, thanks to pricing strategies and productivity savings. However, this was overshadowed by a decrease in operating margin, influenced by higher marketing spend and inflationary cost pressures. The outlook remains cautious with an expected group improvement of 2-4% led by the health and hygiene sectors, albeit heavily weighted towards the second half of the year. This indicates that short-term trading may continue to lag behind market estimates, reflecting a further post-pandemic slowdown.
"The stock, while not expensive by historical standards and offering a 3.5% yield, reflects the current sentiment. The narrative around Reckitt Benckiser has been challenged; the company excelled during the pandemic, benefiting from heightened hygiene awareness. However, it now faces the task of proving its capability for steady growth and profitability in a changed world.
"The appointment of a new chief executive and CFO last year signifies a pivotal moment for Reckitt Benckiser. They carry the weight of transforming the company into one that can consistently grow and increase profitability post-pandemic, a period during which the company saw significant success.
"The journey will require addressing hard comparisons while maintaining and advancing the long-term narrative of the company. Although Q4 numbers may not immediately alter market sentiment, there is hope for a more positive future narrative, provided the new leadership can effectively communicate and implement their vision for a company with fundamentally strong market categories. However, it's clear that changing market sentiment and proving the company's long-term value proposition will take time and effort."
