- Organic growth turns negative
- Shares fall to post-pandemic low
- £4 billion wiped off market cap
After missing market forecasts for third-quarter sales last October, FTSE 100 household and personal goods group Reckitt Benckiser (RKT) reported an even more disappointing set of fourth-quarter results with like-for-like sales in negative territory.
The shares slumped as much as 10% to £52.54, their lowest level since the depths of the pandemic-related sell-off in March 2020, wiping more than £4 billion off the company’s market value.
‘UNSATISFACTORY’ RESULTS
Although analysts had anticipated Reckitt would report slow organic growth in the final quarter of last year, particularly in Health and Nutrition due to the twin effects of a strong flu season and tight supplies of infant formula in the US the previous year, the group posted a surprise 1.2% drop in like-for-like sales against consensus expectations of a 1.75% increase.
Health sales were 2% lower due to a less severe flu season, while Nutrition sales fell a worse-than-expected 14.8% due not only to tough comparables but due to the voluntary recall of Nutramigen due to potential contamination.
Hygiene revenues rose 5.2% on an organic basis, thanks to the firm’s ability to charge a premium for its flagship brands like Cillit Bang, Finish and Vanish, but this still wasn’t enough to offset the drop in the other two divisions.
In addition, Reckitt said it had identified ‘an understatement of trade spend’ in two Middle Eastern markets going back beyond the fourth quarter which meant sales net of costs to third parties were £55 million lower than expected.
The combined effect of lower organic growth and higher trade costs meant full-year operating profits were down 1.9% and earnings per share were 5.4% lower.
Chief executive Kris Licht, who only took over the top job last October having previously run the Health business, admitted the company’s fourth-quarter performance was ‘unsatisfactory’ but stuck to his guns, forecasting mid-single-digit growth in Health and Hygiene this year with Nutrition expected to return to positive growth later in the year helped by 2023’s weak comparables.
EXPERT VIEWS
‘The narrative around Reckitt Benckiser has been challenged’, said Chris Beckett, head of equity research at Quilter Cheviot. ‘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 chief financial officer last year ‘signifies a pivotal moment for Reckitt Benckiser’, adds Beckett. ‘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.’
AJ Bell investment director Russ Mould commented: ‘Reckitt’s results are plagued by a multitude of problems. Sales volumes fell 4.3% in the fourth quarter which is a worrying sign for the company.
‘It’s clear from industry trends that cash-strapped consumers have shifted to cheaper alternatives including supermarket own-brand items.
‘As the owner of a large portfolio of well-known brands, Reckitt has found life a lot tougher and its latest results suggest its pricing power isn’t as strong as some people thought.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Ian Conway) and the editor (James Crux) own shares in AJ Bell.
