Reckitt reported first-half net revenue of £6.4bn (£6.2bn expected), reflecting like-for-like (LFL) growth of 2.6%. This was driven by better-than-expected performances in Emerging Markets and Mead Johnson Nutrition.
Adjusted operating profit came in at £1.5bn (£1.4bn expected), down 14.5% ignoring exchange rates. The decline was due to unfavourable cost inflation and product mix, but faster-than-expected progress on its cost-saving programme helped drive the beat.
Free cash flow fell 32.7% to £419mn, reflecting lower cash generation following the Essential Home disposal. Net debt increased from £8.4bn to £9.4bn.
For 2026, the group maintains its guidance of 4-5% LFL net revenue growth.
The group increased its interim dividend by 5.0% to 88.6p per share, and a new £0.5bn share buyback programme was announced.
The shares rose 7.2% in early trading.
Our view
Reckitt’s sales picked up pace in the second quarter, with strong volume growth driving a better-than-expected performance. Good progress on its cost-saving programme also helped margins land ahead of forecasts. With sales momentum expected to continue into the second half, markets were pleased to hear that full-year guidance remains on track.
Restructuring and selling underperforming assets is something that’s becoming a trend in the consumer goods space these days. The Essential Home business was offloaded last year, so comparable profit numbers should get easier from here. Meanwhile, Mead Johnson Nutrition remains on the auction block, and until a sale is completed, it’s likely to remain a drag on group performance.
If the exit from Mead Johnson is executed well, that’ll leave behind a concentrated collection of the group’s best brands, which should help drive 4-5% top-line growth in 2026. These so-called Powerbrands are global names like Vanish, Durex and Dettol and are gaining real traction in Emerging Markets.
We like the idea - the bigger-is-better approach of the past is gone, and focusing on areas where Reckitt has market leadership should help drive better sales growth going forward. This collection of core brands has a history of outperformance and should be able to attract higher margins.
Margins came under some pressure from higher input costs and an unfavourable product mix, but better-than-expected cost savings helped offset the impact. Although we’re happy to see excess spending stripped away, there’s a slight worry that a focus on these efficiency gains is a temporary fix. To sustain longer-term growth, we’d like to see more of a focus on finding new distribution and increasing market share.
Emerging markets will remain the main growth driver going forward. The opportunity is huge, so we see a long runway for further growth here if the group can execute well. Developed markets remain a tougher battleground, and increased promotional activity in these regions is weighing on the performance of the group’s Household Care brands, which is likely to continue in the near term.
The balance sheet is in reasonable health, and with a history of delivering healthy free cash flow, the 4.5% forward dividend yield looks well covered. Although, there are no guarantees.
We can see the vision, and with the valuation sitting some way below the long-run average, it doesn’t look too demanding to us. Full-year guidance still looks achievable but relies on new products hitting the ground running in the second half. Reckitt’s transformation still has some major hurdles to overcome, including the remaining sale of one of its non-core assets, which adds risk.
Environmental, social and governance (ESG) risk
The retail industry is low/medium in terms of ESG risk but varies by subsector. Online retailers are the most exposed, as are companies based in the Asia-Pacific region. The growing demand for transparency and accountability means that human rights and environmental risks within supply chains have become a key risk driver. The quality and safety of products as well as their impact on society and the environment are also important considerations.
According to Sustainalytics, Reckitt’s overall management of material ESG issues is strong.
Reckitt’s corporate responsibility committee oversees its ESG strategy, with progress reported in the annual Sustainability Insights Report, focusing on 19 areas like ethical business, product safety, and waste management. The company has strong anti-bribery policies and initiatives, including regular employee training and external audits, to ensure product safety. However, gaps in reporting persist, particularly around external quality management certification for Reckitt’s sites and suppliers.
Reckitt key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember that yields are variable and not a reliable indicator of future income. Keep in mind that key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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 LSEG. 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.