- Consumer giant shows the power of its brands
- Full year sales growth to beat previous forecast
- Shares lead FTSE gainers ahead of Fed meeting
Shares in Reckitt Benckiser (RKT) leapt 6% to £67.54 to top the FTSE 100 leader board after it became the second big consumer goods group to surprise investors this week with better than expected results and an increase in full year guidance.
Like Unilever (ULVR) yesterday, Reckitt was able to demonstrate the value of its brands by raising prices across the board.
BROAD-BASED GROWTH
For the first half to the end of June the firm posted an increase of 8.6% in like-for-like sales thanks to a 7.4% improvement in prices and product mix and a 1.2% rise in volumes.
Reckitt said it saw ‘continued broad-based growth and momentum across all business units and geographies’, while singling out US nutrition as getting an extra lift as competitors struggled with supply issues.
In the second quarter alone, the company posted like-for-like sales growth of 11.9% driven by a 9.7% improvement in prices and product mix and a 2.2% rise in volumes.
The health business registered like-for-like sales growth of 24.2% during the quarter, while nutrition fared even better with like-for-like growth of 26.8% in the three months to June.
The only weak spot was hygiene, which recorded a 2.5% drop in like-for-like sales due to a strong prior-year comparison for Lysol sales: excluding Lysol, underlying hygiene sales grew 8.9% during the quarter.
Alongside the growth in revenues, tight cost control meant the first half operating margin jumped from 22.7% to 25.6%, well ahead of estimates.
‘We have built a stronger, more resilient business around our portfolio of trusted brands in growth categories’, said chief executive Laxman Narasimhan.
‘Despite challenging conditions, we are confident about the rest of the year, we are already delivering sustainable mid-single digit net revenue growth, and remain firmly on track to deliver our medium-term adjusted operating margin goal’, he added.
RAISING GUIDANCE
Thanks to its ‘excellent’ first half performance, the board raised its forecast for full year like-for-like sales growth from the top end of its previous forecast of 1% to 4%, to between 5% and 8% potentially.
At the same time, it said adjusted operating margins would be higher than last year rather than unchanged as per its April guidance.
Russ Mould, investment director at AJ Bell (AJB), described today’s news as ‘hugely encouraging as the business demonstrated its ability to pass on surging input costs to consumers’.
After the initial jump in sales of its hygiene products during the pandemic the firm has been ‘running through treacle as it looks to make tangible progress’, said Mould.
He cautioned that despite the first-half beat, the second half still represented ‘a significant test for the business, and it will be intriguing to see how it responds’.
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. Ian Conway, who wrote this article, owns shares in AJ Bell.
