- Mixed annual results
- Q4 like-for-likes disappoint
- Essential Home sale on track
Reckitt Benckiser’s (RKT) shares rallied 2.6% to £53.22 after the consumer and household goods giant reported better-than-expected full-year margins and reiterated its bold plans to restructure and simplify the business.
This more than compensated for worse-than-expected fourth quarter sales from the Durex-to-Mucinex maker after a weak cold and flu season hurt the Health division.
The FTSE 100 company said its Essential Home business is due to be sold by the end of this year and it is ‘evaluating opportunities’ for Mead Johnson Nutrition, its troubled infant formula business.
While full-year 2025 organic sales growth guidance of 2% to 4% from the Air Wick-to-Lysol supplier came in below consensus, a better rate is expected from ‘core Reckitt’, with medium term sales growth expected to be in the 4% to 5% range.
Q4 SALES DISAPPOINT
Fourth quarter like-for-like revenue growth of 4.6% represented a big improvement on the 0.4% advance seen in the third quarter, but it was shy of the 5.5% consensus estimate due to a weak cold and flu season in the US.
However, Reckitt stressed that ‘as the cold and flu season has come in Q1 2025, we are seeing good growth and market share gains in the US upper respiratory category early in the year’.
Elsewhere, the Nurofen-to-Gaviscon supplier generated growth in Hygiene, up 5.5% in Q4, amid strong showings from the Finish, Vanish and Harpic brands, and in Nutrition, where sales rose 8.4% thanks to retailer restocking after the tornado-induced disruption witnessed in the third quarter.
For year ended 31 December, like-for-like sales edged up 1.4% amid ‘improved market share performance’ and Reckitt generated a pleasing 140 basis point hike in its operating margin to 24.5% with a boost from cost savings.
RESHAPING RECKITT
CEO Kris Licht commented: ‘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.’
Licht continued: ‘This solid progress enabled us to deliver our ambition for full-year like-for-like net revenue, adjusted operating profit, and EPS growth, as well as strong cash returns to shareholders.’
PLENTY TO UNPICK
AJ Bell investment director Russ Mould said there was plenty for investors to unpick in Reckitt’s statement as the company continues along the restructuring path.
‘On the plus side, proposals to reshape the business have been firmed up, with a plan to exit the portfolio of non-core brands - somewhat ironically dubbed Essential Home - on track to complete this year.
‘Reckitt also delivered strong margin performance and hiked the dividend. Of more concern to the market in the short term will be the soggy fourth quarter sales performance which seems to be leaking into the outlook for 2025 as a whole.’
Mould added: ‘A weak cold and flu season in the US was the main culprit but there may still be some concern about the strength of the core brands Reckitt is retaining and whether shoppers are trading down to unbranded alternatives.
‘There may also be disappointment that Reckitt didn’t have anything more definitive to say about an exit from its Mead Johnson infant formula arm. The $18 billion capture of this business in 2017 has been a disaster of a deal and remains a source of litigation risk for the group.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.
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