Consumer goods goliath Reckitt Benckiser (RKT) reported a 4.1% rise in second quarter like-for-like sales, ahead of the 3.7% growth called for by analysts and taking first half growth to 6%.

The FTSE 100 company behind health and hygiene brands from Durex and Dettol to Air Wick, Nurofen and Gaviscon also forecast that full year adjusted operating margins will be slightly ahead of 2022 levels.

Why then, did the shares cheapen 2.4% to £58?

A rough 3% dip in pre-tax profit to £1.64 billion for the first half to 30 June, struck after increased finance costs, didn’t help.

But the big disappointment was Reckitt’s failure to raise its 3%-to-5% like-for-like sales growth target for 2023, with management pinning this outlook caution on the ‘challenging competitive dynamics’ facing its US nutrition business in future quarters.

HAS RECKITT REACHED ITS PRICING POWER LIMITS?

Second-quarter like-for-like sales growth reflected an 8.4% increase in prices from Reckitt Benckiser, but this resulted in a 4.3% decline in volumes, suggesting there are limits to its pricing power despite an enviable portfolio of brands.

During the first half, Reckitt’s hygiene like-for-like sales grew 3.6% driven by Finish, Harpic, Vanish and Air Wick and underpinned by ‘early success of innovation launches’.

Encouragingly, the Lysol brand returned to growth in the second quarter following a first quarter decline that reflected demanding Covid-19 comparatives.

In health, like-for-like revenue rose 8.8% in the first half, with over-the-counter (OTC) brands Mucinex, Nurofen, Strepsils, Gaviscon and Biofreeze all delivering double-digit growth. Meanwhile, Reckitt’s intimate wellness portfolio grew by high single digits, with sales in China beginning to benefit from the reopening after stringent Covid lockdowns.

TOUGHER COMPARATIVES TO COME

Chief executive Nicandro Durante said Reckitt’s strong first half performance ‘gives us confidence in our full year targets, despite some tough comparatives in our OTC portfolio and an expected tougher competitive environment in US nutrition in H2.’

During last year’s second half, Reckitt’s sales benefited from a baby formula shortage across the pond after market leader Abbott Laboratories (ABT:NYSE) recalled dozens of brands.

Durante, who will hand over the baton to Kris Licht by the end of 2023, added: ‘Amidst a backdrop of challenging market conditions and uncertainty, the business has strong momentum, yet with an opportunity to further strengthen our execution, optimise our cost base, and deliver improved returns to shareholders.’

Reckitt Benckiser said it expects to deliver free cash flow north of £2 billion for the year, which will reduce its leverage ratio to below 2 times by the end of the year. This gave Reckitt the confidence to raise the first half dividend by 5% to 76.6p, an increase ‘consistent with our aim to deliver sustainable dividend growth’.

LEARN ABOUT RECKITT BENCKISER

---