- Return to positive like-for-like growth
- Full year guidance reiterated
- Litigation worries cloud the outlook
Consumer goods powerhouse Reckitt Benckiser (RTK) topped the FTSE gaining almost 5% to £14.44 after revealing better than expected first quarter like-for-like sales and confirming full year profit targets.
The shares are down 18% year to date compared with a 5% gain in the FTSE 100 index reflecting a string of disappointing trading updates and litigation concerns around the safety of Reckitt’s Enfamil Premature 24 baby formula.
The household and personal goods maker surprised analysts after returning to positive like-for-like sales growth of 1.5% compared with an expected fall reflecting a more balanced contribution from price, mix and volumes.
WHAT DID THE COMPANY SAY?
Chief executive Kris Licht commented: ‘We grew volumes in many of our powerbrands in the quarter, including Lysol, Dettol, Durex and Finish, as well as our non-seasonal OTC portfolio. In addition, we continue to benefit from carryover pricing and consumers trading up to our premium innovations.
‘We are on track to deliver our full year revenue and profit targets, led by mid-single-digit growth across our Health and Hygiene portfolios.’
Group net revenue declined by 4.6% to £3.74 billion impacted by foreign exchange headwinds of 5.7%.
Broad-based volume growth across hygiene powerbrands Finish, Lysol and Harpic helped drive 7.1% like-for-like sales growth. Health revenue was 1% ahead driven by volume growth across intimate wellness and non-seasonal over the counter brands, VMS and Dettol, offset by the lapping of prior year inventory build.
Nutrition like-for-like sales were down 9.9% as temporary market share gains continued to normalise.
The company reiterated its full year outlook which calls for 2% to 4% like-for-like net revenue growth and adjusted operating profit growth ahead of net revenue growth.
As previously announced Reckitt started the third tranche of a £1 billion share buyback programme in April and is expected to announce the next programme in July.
EXPERT VIEW
Investment director Russ Mould at AJ Bell commented: ‘There are two major challenges for Reckitt. The first is making sure price hikes don’t weaken demand – if volumes decline, it suggests customers have reached their limit with higher prices and are cutting back or shopping elsewhere.
‘If the tide is now turning, it’s positive for Reckitt although this trend needs to extend across all its portfolio to really make a difference.’
The second challenge for the business is the one that’s led to its worst share price performance in four years. The shares slumped earlier this year amid fears over litigation around the safety of its Enfamil baby formula.
‘The market is worried that a recent court instruction to pay $60 million to a mother of a premature baby who died after being fed the product is the first in a long line of payouts. A mountain of liabilities from hundreds of lawsuits could add up to a significant sum.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Martin Gamble) and the editor (Steven Frazer) own shares in AJ Bell.
