ii view: manufacturing issues cause Reckitt Benckiser results miss

Trading update for third quarter to 30 September

• Core business revenues up 3.3% to £2.69 billion
• Total group revenues including the Mead Johnson Nutrition business up 3.2% to £3.24 billion

Guidance:

• Now expects growth in core business full-year revenue of 3.5% to 4.5%, down from a previous 4-5%

ii round-up:

Reckitt Benckiser Group (LSE:RKT) today detailed sales that missed City forecasts, with the maker of branded hygiene and health products downgrading growth estimates for annual sales.

Temporary manufacturing constraints as part of an ongoing facilities upgrade affected sales at its hygiene brand Lysol, contributing to a 1.3% fall in third-quarter North American sales. As such, growth of 3.3% in group-wide sales minus the non-core Mead baby nutrition business, missed analyst hopes for a gain of 4.1%.

Shares in the FTSE 100 company fell 5% having come into this latest news down by around a tenth so far in 2026. Consumer goods giant and maker of Domestos Unilever (LSE:ULVR) is up around 0.5% this year, while the FTSE 100 has gained 8% year-to-date.

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Reckitt Benckiser sells across the four categories of germ protection, household and self-care, as well as intimate wellness. Group brands include Dettol, Finish, Gaviscon and Durex.

The Slough headquartered company now expects growth in full-year core business revenues of 3.5% to 4.5%, down from a previous 4% to 5%.

North America accounts for 24% of total sales. Europe, responsible for 32% of overall sales, returned to growth during the quarter, rising 0.8%, with price rises and changes in the product mix more than offsetting a 3.2% decline in volumes.

Emerging market sales, Reckitt's biggest region at 44% of sales, rose 8%, driven both by price increases and a 2.3% gain in volumes. 

Intimate Wellness led sales during the period, rising 6.4%, with gem protection up 6%, self-care gaining 2.2%, but household care fell 1.5% due to a tougher consumer environment and intense competition in North America.

A sale of the group’s Russian hygiene business is expected to complete soon, with sales at the non-core Mead nutrition business rising 2.7%.

Just over £400 million of a £500 million share buyback programme, started in August, has yet to be executed. Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the trading update.

Full-year results are due on 25 February.

ii view:

Formed via the merger of Reckitt & Coleman and Dutch company Benckiser in 1999, the group today employs around 36,000 people. Germ protection, including the Harpic brand, continue to lead category sales at 33% year-to-date. That’s followed by self-care, which includes brands Nurofen and Strepsils, at 32%, household care and brands including Vanish at 20%, and intimate care including the Veet brand at 15%. Mead Johnson Nutrition remains a non-core business with all strategic options being considered.

For investors, execution issues pushing towards increased manufacturing capacity in North America cannot be ignored. Higher energy costs in the wake of the Middle East conflict likely mean a tougher North American consumer environment and falling volumes in Europe, with a switch to cheaper alternative brands potentially ongoing. Exposure to cold and flu remedies leaves sales open to fluctuations, while a forecast price/earnings (PE) ratio above the three-year average may suggest the shares are not obviously cheap.

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On the upside, manufacturing issues are expected to prove temporary, with some rebound likely in Q4.  A rejuvenated strategy now sees a more focused and simplified business with product innovation a core theme. Cost savings are still being targeted as part of its ‘Fuel for Growth’ improvement plan, while over £6 billion of shareholder returns have been made since July 2024.

On balance, and while risks remain, a consensus analyst fair value estimate above £62 per share and forecast dividend yield of close to 4% look to give grounds for longer-term hope.

Positives:

• Diversity of product type and geographical location
• Sizeable exposure to Emerging Markets

Negatives:

• Uncertain economic outlook
• Subject to currency fluctuations

The average rating of stock market analysts:

Buy