First half revenue rose 2.2%, excluding the impact of exchange rates, to £6.9bn. That reflected like-for-like (LFL) sales growth of 8.6%, with price increases contributing 7.4% and the remainder from slightly higher volumes.
Reckitt's cost saving programme was ahead of schedule, helping to offset significant inflationary pressures. As a result, underlying operating profit grew 20% to £1.8bn.
The outlook for the full year has improved. LFL sales growth is now expected between 5-8%, up from 1-4%. Despite cost inflation in the high-teens, operating margins are expected to grow, as opposed to remain flat.
The board has recommended a dividend of 73.0p.
The shares rose 5.1% following the announcement.
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Our View
Reckitt's resilient performance so far this year continues to impress. Price hikes were all but guaranteed given the double-digit inflation in certain costs, but impressively volumes are still growing. That's testament to the defensive nature of Reckitt's portfolio, cleaning and hygiene products are hardly going to be the first things left off shopping lists when wallets are stretched.
Whilst the incredible demand for the Lysol and Dettol maker's products continues to taper, demand looks like it will remain elevated (compared to pre-pandemic levels). That adds weight to the argument that heightened hygiene awareness is here to stay, which would make for a long-term revenue bump.
The pandemic added wind to Reckitt's sales just as it was looking for ways to propel sustainable, long-term sales and profit growth. Digital marketing has lowered the barriers to entry for launching a new brand, leading to an influx of market-share-stealing smaller companies and fierce price competition.
Deep pockets should give the group an edge - cooking up superior products is what supports brands' premium price tags, which should ultimately underpin margins. Reckitt seems to be making genuine headway on improving supply chains and stock availability already - both crucial if you want to grow sustainably.
Meanwhile a growing online presence means ecommerce continues to grow and makes up roughly 13% of total revenue. Long term, this could allow the group to bypass retailers - helping boost Reckitt's share of the pie.
Reckitt's spent the last couple of years improving and sharpening its proposition and the portfolio's undergone a hefty shakeup. The group's offloaded the Scholl brand, entered the US pain treatment arena and sold its Dermicool and E45 businesses.
The balance sheet's in reasonable health, with net debt coming down to 2.4 times cash profit (EBITDA). Plus, with over 50% of underlying net profit making its way to free cash, there's wiggle room if the group needs it.
The pandemic meant Reckitt items became a must-have in households all over the world, and management's done a good job leveraging that tailwind to create a refreshed business. As we've seen across the broader industry, cost inflation will continue to weigh on results throughout 2022. This could see the share price wobble in the near-term, although Reckitt looks to be handling the challenge well so far.
Reckitt Benckiser key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
Half Year Results (excluding the impact of exchange rates, revenue figures are quoted on a LFL basis)
Hygiene net revenue fell 6.0%, to £2.9bn. Volumes declined 12.0% while higher prices had a positive impact of 6.0%. Lysol sales fell around 30%, as expected, given the rebasing of demand following significant growth last year. Underlying operating profit fell 21.9% to £621m, driven by strong Lysol comparatives and 'significant' inflationary pressures.
Health net revenue grew 22.4%, to £2.8bn, with higher prices contributing 7.1%. Strong performance from over-the-counter products, considering Omicron and a better cold & flu season, helped volumes grow 15.3%. Underlying operating profit grew 61.1% to £799m.
Low double-digit growth in both volumes and prices helped Nutrition net revenue increase 23.6%, to £1.2bn. Lack of competitor supply increased demand for Reckitt's products which reaped the benefits. Underlying operating profit almost doubled to £345m, benefitting from better efficiency with the disposal of infant child nutrition China and the sale of surplus land in Asia.
Free cash flow improved from £520m to £727m, largely a result of higher operating profit. Net debt increased over the period by £204m to £8.6bn, as higher free cash flow was offset by unfavourable currency exchange movements.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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