Reckitt Benckiser Group Plc (RKT) Ord 10p

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Reckitt reported first-quarter net revenue of £3.7bn, reflecting like-for-like (LFL) growth of 1.1% (1.4% expected). Growth was driven by higher prices at 3.0%, offset by a 1.9% drop in volumes.

Core Reckitt contributed to growth driven by strong performance by germ protection and intimate wellness powerbands, while non-core Reckitt (Essential Home and Nutrition) saw significant volume declines.

Reckitt’s maintained its full year outlook for LFL net revenue growth of 2-4%. This includes an expectation for a low-single-digit LFL net revenue growth in Essential Home and Mead Johnson Nutrition, weighted toward the second half of 2025.

£815mn of shares have been repurchased as part of the ongoing £1.0bn buyback programme.

The shares down 3.1% in early trading.

Our view

Reckitt’s first quarter revenue wasn’t miles away from expectations but given the weakness in volumes, and specifically a very poor organic growth number from the non-core business, questions have been raised. The positive elements came from limited tariff impacts and good growth from parts of the core portfolio.

There’s a fairly significant restructure underway, something that’s becoming a trend in the consumer goods space these days. Several ‘non-core’ home care brands are on the chopping block, as well as the US-based Nutrition business, Mead Johnson – in total they currently amount to around 30% of total sales.

Adverse market conditions and lacklustre performance could hinder the planned sale of their Essential Home business, and we think the rumoured $4bn price tag looks a little optimistic.

If the exits are executed well, that’ll leave behind a concentrated collection of the group’s best brands, 11 of which will make up around 80% of the streamlined Reckitt’s total sales. These include 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.

Shipping off Mead Johnson could also help alleviate some valuation pressure. There are hundreds of ongoing court cases in the US relating to its infant baby formula. Recent case developments add uncertainty with an overturned ruling and potential retrial, weighing on sentiment and posing an ongoing risk.

Portfolio changes, along with cost cuts, have helped gross margins return to historic levels. 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.

The balance sheet's in reasonable health, and with a history of delivering healthy free cash flow, the 4.3% forward dividend yield looks well covered. Although, there are no guarantees.

We can see the vision, and the valuation doesn’t look too demanding to us. But investors will need patience. Reckitt’s transformation still has some major hurdles to overcome, and weak performance plus ongoing court cases from the units with a for-sale sign attached to them 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.

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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