Reckitt delivered like-for-like (LFL) net revenue growth of 1.3% to £2.6bn in the core business over the first quarter. Declines in Europe and North America were more than offset by growth in Emerging Markets, including double-digit growth in China and India. Excluding seasonal cold and flu products, LFL net revenue growth was 3.1%.
Including the for-sale Mead Johnson business, Reckitt’s LFL net revenue grew 0.6% to £3.2bn.
Full-year guidance has been maintained, with the core business expected to deliver LFL net revenue growth of 4-5%.
Nearly £0.7bn of the ongoing £1.0bn share buyback programme has been completed.
The shares fell 6.6% in early trading.
Our view
Reckitt had a soft start to the year due to a weak cold and flu season across Europe and North America, which saw the shares move lower on the day. With that headwind subsiding and stronger sales elsewhere, full-year revenue growth guidance has been maintained for now.
Restructuring and selling underperforming assets is something that’s becoming a trend in the consumer goods space these days. Mead Johnson Nutrition remains on the auction block, and there are reports that French food and drink company Danone could be a potential buyer. But any sale would likely fall short of the £12.5bn Reckitt originally paid for the business back in 2017. 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 have a relatively even split across Europe, the US and 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.
Portfolio changes, along with cost cuts, have helped gross margins continue their upward trend, despite the negative impact of tariffs. While we’re happy to see progress, there’s a slight worry that a focus on costs and gross margins 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's in reasonable health, and with a history of delivering healthy free cash flow, the 4.8% forward dividend yield looks well covered. Although, there are no guarantees.
We can see the vision, and given the recent pullback, the valuation doesn’t look too demanding to us. Full-year guidance still looks achievable, but relies on new products hitting the ground running. 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 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 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.
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.