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Reckitt Benckiser - positive start to the year

First quarter net revenue came in at £3.4m, reflecting like-for-like (LFL) growth of 5.6%. Most of the growth came from higher prices, as volumes...

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First quarter net revenue came in at £3.4m, reflecting like-for-like (LFL) growth of 5.6%. Most of the growth came from higher prices, as volumes saw a marginal increase of 0.3%.

LFL net revenue growth is now expected toward the top end of previous guidance of 1-4%. Despite "significant cost inflation" meaning costs have increased in the high-teens, underlying operating margins are expected in-line with the previous year.

Reckitt shares rose 1.9% following the announcement.

View the latest Reckitt Benckiser share price and how to deal

Our View

Reckitt's showing exactly how you manage an inflationary crisis. Margins are staying intact and rising prices have kept revenue ticking over while maintaining volumes - that's no mean feat.

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 12% 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 for £240m.

We're relieved to see the back of the Chinese Infant Child Nutrition business, with the sale completing last September. There's no getting away from the fact this was a major strategic hiccup, with the net proceeds of £1.3bn a tiny fraction of what the group paid for the business.

At the end of the last financial year, net debt was reined in slightly but is still higher than we'd like. It's an area we'd like to see improve in the short to mid-term.

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 and the longer-term growth story is still intact in our view.

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.

First Quarter Results (revenue on a LFL basis)

Hygiene net revenue fell 9.0% to £1.5bn, volumes declined 12.8% while price/mix had a positive impact of 3.8%. Lysol sales fell around 30%, as expected, given the rebasing of demand following significant growth in Q1 of last year. Most products in the segment saw revenue grow, including Finish, Air Wick and Vanish.

In Health, volume and price/mix growth of 15.5% and 5.1% respectively helped push net revenue to £1.4b, up 20.6%. Over the counter products like Mucinex and Strepsils were the standout performers, a combination of Omicron and a better cold and flu season gave demand a boost. Dettol sales fell, given the tough comparable period, but look to be stabilising ahead of pre-pandemic levels.

Nutrition also posted strong net revenue growth of 20.4% to £557m, reflecting an 8.9% increase in volumes and 11.5% from price/mix. Market share gains were strong in the US, helped by the infant child nutrition (IFCN) business which saw 30% net revenue growth. Total net revenue was down 36.5% due to the disposal of IFCN China and EnfaBebé in Argentina.

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.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Matt-Britzman
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 29th April 2022