Last week Reckitt reported an increase in their prices of 5.3% in the first quarter, in line with the likes of Procter & Gamble and Nestle. And volumes were also up if you exclude pandemic distorted surge and declines in Lysol. The company raised its outlook for revenues for the year, but guided margins flat in the face of higher than expected inflation running at nearer 20%.
All-in-all we view this as an encouraging result, and proof that the company continues to execute well, in what is an extremely challenging environment for consumer-facing companies.
It was also reported last week that Reckitt had begun the sale process for the entirety of its remaining infant nutrition business. It would draw a line under the failed £13bn acquisition of Mead Johnson under the previous CEO in 2017. It could also raise up to £8bn in sale proceeds and potentially leave the company debt free or some timely flexibility for M&A.
Opportunities may arise as inflationary pressures build and make competitors reassess their own portfolios, while in July GlaxoSmithKline will finally spin-off of its consumer health division as Haleon. Glaxo has been making disposals of non-core brands since the merger with Pfizer’s consumer health division, but it is not inconceivable that the Haleon portfolio might undergo some further rationalisation of its own. Prospectively Haleon will be starting out in life with a hefty leverage profile of 4x net debt to EBITDA and the slowing economic environment with inflation and rising interest rates might warrant some help in reducing that more speedily.
Whether Reckitt makes any acquisitions or not, the disposal of nutrition would immediately improve Reckitt’s organic sales growth and margin profile, and also allow increased focus on delivering on execution in these difficult times.
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