The new chief of Reckitt has unveiled a £1 billion share buyback alongside third-quarter results in what he called a “clear indication of my confidence” in the consumer goods company.
Kris Licht, 47, who formally took charge of FTSE 100 group this month, vowed to “sharpen” its portfolio of health, hygiene and nutrition brands, to extend a savings programme to focus on fixed costs and reiterated a medium-term financial forecast of “mid-single-digit, like-for-like net revenue growth”.
However, investors in the maker of Nurofen, Durex and Strepsils focused more on Reckitt’s quarterly trading performance, which was weaker than the City had expected, and noted sharper declines in sales volumes within its infant nutrition business in the United States. Reckitt’s shares closed down 4 per cent, or 238p, at £56.78 last night, making it the second largest faller in London’s premier share index and leaving them at their lowest level since August.
Based in Berkshire, Reckitt is one of the world’s biggest consumer healthcare groups, but, having attracted an unwanted reputation for mishaps and disappointing trading updates and after the abrupt departure of Laxman Narasimhan, its former boss, to Starbucks in September last year, it is seeking to rebuild stock market confidence.
It promises to be a tough task. Analysts at Barclays said: “Investors are unlikely to give Reckitt the benefit of the doubt, so it will likely hinge on execution over the coming quarters.”
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Licht, the former head of the company’s health business, acknowledged the challenge. “Reckitt was known as an outstanding shareholder-value creator,” he said, “and the vast majority of the portfolio that did that, the people that did that, are still very much here. So I am very interested in returning the company to that place.”
He said Reckitt boasted an “excellent portfolio of market-leading, high-margin brands in growth categories”, but admitted that there was “room to sharpen and improve. I will look at the whole portfolio and every brand and every business has to earn its place. And we’re going to be really disciplined about this framework.”
The renewed cost-cutting was not defined, but the company will look at simplifying its structure and adopting new technologies, such as generative artificial intelligence. Licht did not rule out job cuts.
Reckitt made a new mid-term prediction that its adjusted operating profit growth would “exceed” net revenue growth, compared with a previous target of “mid-twenties margins by the mid-2020s”, which Licht said “gets you broadly to the same place” but gave it “more flexibility to invest in profitable growth”.
Analysts at RBC Capital, the broker, agreed, saying: “We dislike companies promising too tight a range for sales growth and margins.”
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Reckitt reiterated that it continued to target group revenue growth of 3 per cent to 5 per cent this year. Group net revenue rose to £3.6 billion in the third quarter, up 3.4 per cent on a like-for-like basis but weaker than the 3.7 per cent that had been forecast by analysts. Sales volumes fell by 4.1 per cent, compared with expectations of a 2.5 per cent drop.
Price increases helped revenue to rise by 8.1 per cent in its hygiene business, which includes Finish and Vanish, the cleaning brands, and 5.4 per cent in its health business, which includes Clearasil and Gaviscon.
The growth was dampened by revenue falling 11.9 per cent in its nutrition business, which includes its Enfamil baby label. Reckitt said this had been due to “unprecedented gains” last year, when it benefited from market shortages in America because of a temporary shutdown of a site operated by Abbott Laboratories, a rival. Licht said it was “holding on to more of that business” than expected and Reckitt remained the revenue market leader in nutrition.
The company also defended price rises in the face of a squeeze on consumer budgets and amid its decision to return £1 billion to investors via the buyback. Jeff Carr, 62, Reckitt’s chief financial officer, said the company was “through certainly the largest element of the price increases that we need to take. I would expect much more modest, if any, price increases as we look to the coming quarters. So certainly most of that inflation is behind us.”
Licht said: “We have not priced through the total inflation that we’ve been exposed to. In fact, we have tried to do everything we could to do responsible price increases.”
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Boss were asked about a panel of the Food and Drug Administration in the United States last month agreeing that phenylephrine, a decongestant ingredient used in many over-the-counter cold medicines, was ineffective. The finding has raised questions over a possible ban and removal of products, including Reckitt’s Mucinex, while companies reformulate them.
Licht said Reckitt was working with the industry and the watchdog, which had not issued any final decision, but added: “We don’t expect this to have a significant impact on our business.”
