A new broom looks like it’s sweeping clean, and the Reckitt (LSE: RKT) share price may be about to fly.
Chief executive Kris Licht arrived on the scene at the beginning of October 2023. So, with more than six months gone, today’s (24 April) first-quarter results update is a good point to assess progress.
Operational challenges
Before diving in, here’s a little context: the fast-moving consumer goods business has been struggling for the past few years. Earnings have been patchy, and the performance of the share price has been, well, yucky!
It’s no coincidence that the company’s fortunes took a downturn when it made one of those ‘transformational’ acquisitions so beloved of executives. The damage occurred in 2017 when Reckitt acquired Mead Johnson Nutrition – a US-based manufacturer of baby milk formula.
The price tag was a whopping $18bn – something of a digression from the company’s previous policy of building slowly with smaller, bolt-on acquisitions.
The move led to plenty of trouble for Reckitt. Some territories struggled with sales and profits. There’s been litigation threats, write-downs and other challenges.
Mead Johnson Nutrition hasn’t been Reckitt’s only source of lower earnings, but it does look like a deal to learn from and move on.
In with the new
The good news is that Reckitt has been doing exactly that. Kris Licht set out his stall with last October’s strategy update. The company said it aims to deliver “sustainable” mid-single digit like-for-like net revenue growth over the medium term.
Things started well for shareholders because the firm announced a £1bn share buyback programme to run for 12 months, which is ongoing now. The directors insisted Reckitt has a strong, well-invested business. A portfolio of “excellent” brands operate in attractive growth categories.
Licht’s fresh pair of eyes led to an upbeat assessment of the company’s prospects. So, are the firm’s investments in innovation, research & development (R&D), and the supply chain leading to ongoing growth?
Today’s figures are encouraging with positive like-for-like revenue growth in the first quarter for the Hygiene and Health categories. However, the Nutrition business – driven by baby milk formula – produced a decline of almost 10%. There’s still work to do in that category, and if management doesn’t focus on improvements here then this could weigh on the share price in the near future.
Licht was upbeat in the statement. After a period of price-led growth, the business is returning to a more balanced contribution from price, mix and volume. Volumes grew in many of the firm’s power brands in the quarter, including Lysol, Dettol, Durex and Finish. There was also good progress from the non-seasonal over-the-counter (OTC) portfolio.
Consistent dividends
My feeling is the enterprise may have passed its low point regarding performance. So the bottoming share price may be a decent opportunity for investors.
One big positive is the dividend. Despite the firm’s troubles, the directors didn’t cut or trim the shareholder payment since at least as far back as 2018.
With the share price near 4,475p, the forward-looking yield for 2025 is just below 4.75%. There are no guarantees of a successful investment outcome. But, to me, the yield looks like decent income from a business that might have just turned the corner.
