Reckitt has reported third-quarter net revenue of £3.6bn, reflecting like-for-like (LFL) sales growth of 3.4%. Higher prices were able to more than offset a 4.1% dip in volume, a larger decline than expected.
LFL sales growth was driven by Hygiene and Health with over-the-counter medicines, Finish, and Lysol ranges the standouts. Volumes in Nutrition were the main detractor, as performance lapped very tough comparable periods due to inflated sales last year as competitors faced supply issues.
Management announced a £1bn buyback to be completed over the next 12 months and reiterated full-year guidance (3-5% LFL net revenue growth).
The shares fell 2.2% in early trading.
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Our view
Reckitt is the maker of household and hygiene staples like Air Wick, Harpic and Vanish. Third-quarter trading continued trends we've been seeing this year, with price hikes helping to overcome falling volumes.
Digging a little deeper into the numbers, the drop in volumes comes from two areas. The first is the Hygiene division as demand for these products normalises post-pandemic. The positive news is that the rebase is significantly ahead of pre-pandemic levels. And after a shaky start to the year, it's encouraging to see sales of Lysol products are heading back in the right direction.
It's pretty clear now that heightened hygiene awareness is here to stay - a long-term tailwind for Reckitt's products.
Nutrition's the smallest division but has been another volume drag. Last year's sales were inflated by competitors' supply issues, and as they come back to market, Reckitt's giving back some of the volumes it gained. It's tricky to map where volumes will settle, so this remains a question mark for now.
First-half margins came in weaker than last year. Higher interest and tax costs, plus higher planned investment in brand support come at the same time as the unwind of some of the infant nutrition gains. All in though, cost management should act to balance the scales and management's now expecting a slight improvement in underlying operating margin for the full year.
Reckitt's spent the last couple of years improving and sharpening its proposition and the portfolio's undergone a hefty shakeup. Meanwhile, a growing online presence means e-commerce continues to grow and makes up roughly 14% of total revenue. Long term, this could allow the group to bypass retailers - helping boost Reckitt's share of the pie.
The balance sheet's in reasonable health, with net debt improving - down to 2.0 times cash profit (EBITDA) last we heard. When you add in £2.4bn of expected free cash this year, it's easy to see where the new £1bn buyback has come from. Of course, no returns are guaranteed.
The current valuation doesn't look overly demanding and we're supportive of the direction of travel. The next few quarters are vital though. Volumes need to start trending back in the right direction as comparable periods get easier, or the pressure could mount.
Reckitt Benckiser key facts
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