ii view: Reckitt Benckiser results disappoint

Health and hygiene products giant Reckitt Benckiser is suffering Chinese baby blues.  

Second-quarter results

• Like-for-like (LFL) sales flat
• Health LFL sales down 1%
• Hygiene Home LFL sales up 3%
• Half-year operating profit up 9% to £1.4 billion
• Interim dividend up 4% to 73p per share

Chief executive Rakesh Kapoor said:

"Our like for like performance in the first half was +1%, somewhat below our expectations. Hygiene Home delivered another quarter of consistent top line growth but progress in Health in the second quarter was disappointing."

Guidance:

Revising 2019 net revenue target to +2-3% like-for-like growth (previously +3-4%). A target of maintaining adjusted operating margins remains unchanged.

ii round-up:

Reckitt Benckiser (LSE:RB.) is a global health, hygiene and home company with operations in over 60 countries. It has two divisions: Health, which generates around 60% of sales, and Hygiene Home.

Brands include Enfamil, Nutramigen, Nurofen, Strepsils, Gaviscon, Mucinex, Durex, Scholl, Clearasil, Lysol, Dettol, Veet, Harpic, Cillit Bang, Mortein, Finish, Vanish, Calgon, Woolite and Air Wick.

The company appointed a new chief executive in June. Laxman Narasimhan joins from PepsiCo in September to take over from Rakesh Kapoor. 

For a round-up of these second-quarter results, please click here. 

ii view:

The sale of its remaining food business in mid-2017 marked the foundation of the company as it is today. The US generates around 25% of sales, with China a little over 10%. A health and hygiene portfolio of products gives the company a defensive tag, with its products likely to prove relatively recession proof. 

For investors, a prospective dividend yield of over 2.5% and covered twice by earnings is at least above the current rate of inflation. On a valuation basis, the forward price earnings (PE) ratio sits only marginally above the 10-year average. This is a quality company that will form part of most investors' portfolios, but today's results serve as a reminder that even relatively defensive companies can suddenly feel off-colour.

Positives: 

• Hygiene Home growing across brands and geographies
• Reduced uncertainty after settling with US on miss-selling of opioids
• New CEO may galvanise and provide renewed clarity of purpose

Negatives:

• Demand for infant formula in China slowed
• Health business subject to swings in cold and flu outbreaks 
• Financial litigation by South Korean consumers overhangs

The average rating of stock market analysts:

Strong hold