6 March 2025
If you are covering Reckitt's latest results, please see the following comment from Chris Beckett, head of equity research at Quilter Cheviot:
"Reckitt posted a somewhat mixed set of results this morning. The company’s profits and earnings beat expectations considerably, and its operating margin improved by 140 basis points to 24.5%. Reckitt called out pricing and productivity as a reason for this - a reduction in its fixed cost base coupled with sales increasing will likely have been having a gearing effect through to profits.
“Reckitt plays in attractive categories with high margins, making today’s results appear much better than if we were looking at a food or personal care specific company. Its over the counter medicines continue to be a main attraction for the company, gaining pricing power from some of its big name brands such a Nurofen.
“Its fourth quarter sales put a slight dampener on the results, though they reflect the weak cold and flu season in the US which we have already seen impacting results from the likes of Kenvue and Procter & Gamble. Its health sales rose 2.4% but would have advanced 8% excluding these seasonal products, while nutrition sales rose 8.4% due to post tornado restocking. While this was not a surprise, a volume decline out of Reckitt’s healthcare business partially offsets the improvement it has built in its hygiene and nutrition business. Sales growth still came in at 4.6%, but the market had been hoping for 5.3%.
“Guidance from management is solid, with 2-4% sales growth expected for the group, and a better rate from ‘core Reckitt’ with medium term sales growth expected to be 4-5%. The company reiterated that the essential home business is due to be sold by the end of this year, and said its infant formula is currently being evaluated.
“The ongoing litigation on the use of infant formula and the tragic deaths of premature babies in the US continues to overhang the stock. One case was lost last year, and a second was won, but this may well go to appeal. Expectations around this litigation are improving for the industry, particularly following the US federal government’s advice for doctors to continue using the formula towards the end of last year. However, there are no guarantees on how it will land in the courts, and this is feeding into Reckitt trading at a discount to its competitors.
“Overall, while today’s results are a mixed bag, Reckitt is certainly making progress. A large proportion of the negatives are out of the company’s hands, but what it can control continues to be managed well.”
