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Reckitt Benckiser raises full-year forecasts

The infant formula and child nutrition business recorded better-than-expected performance in the first half, leading management to increase full-year group sales forecasts
July 27, 2018

Reckitt Benckiser (RB.) has spent the past year transitioning from a consumer goods company into a health and hygiene business. After selling food business McCormick just over a year ago, it recently bought infant formula maker Mead Johnson. It means around 80 per cent of group sales now come from health and hygiene, so perhaps the corporate makeover is starting to pay off.

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A better-than-expected performance from the infant formula and child nutrition (IFCN) division prompted an increase in total net revenue growth expectations at constant currency to between 14 and 15 per cent, from previous guidance of 13 to 14 per cent, which implies like-for-like sales growth of 2 to 3 per cent. The upgrade was welcomed by the market, which is used to Reckitt Benckiser reporting subdued growth. Unsurprisingly, the shares rose strongly by way of reaction.

Arguably, the IFCN division benefited from the Mead Johnson acquisition, which helped boost sales by 7 per cent – although the deal only contributed to the final two weeks of the reported period. The bulk of the growth came from China, the world’s largest IFCN market, and management now wants to introduce innovative new products to the range and establish new sales channels. During the period it expanded distribution in "Mom and Baby" stores, both in China and the US.

Part of the reasoning for the health and hygiene transition is that it's a much higher-margin business and, during this period, an adjusted operating margin of 23.6 per cent beat consensus expectations. On a pro-forma basis, this represented a 50 basis point improvement on last year, albeit a reported 30 basis point decline after accounting for lower-margin business from Mead Johnson.

Analysts at Liberum expect EPS of 338p in 2018, up from 317p in 2017.

RECKITT BENCKISER (RB.)  
ORD PRICE:6,747pMARKET VALUE:£47.7bn
TOUCH:6,746-6,749p12-MONTH HIGH:7,593pLOW: 5,255p
DIVIDEND YIELD:2.5%PE RATIO:14
NET ASSET VALUE:1,947p*NET DEBT:78%
Half-year to 30 JunTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
20174.981.0211166.6
20186.141.1112370.5
% change+23+10+11+6
Ex-div:16 Aug   
Payment:27 Sep   
*Includes £29.7bn of intangible assets, or 4,201p a share