A £1bn share buyback was not enough to placate Reckitt Benckiser investors this week, as the consumer giant’s shares slid back on weaker-than-expected sales volumes.
On Wednesday, the Dettol and Durex maker announced third quarter volumes had declined 4.1%. This was attributed to higher prices dampening demand and its nutrition division lapping artificially high figures last year during a baby formula shortage in the US.
A 7.5% increase in prices helped drive a 3.4% rise in like-for-like revenues in the third quarter to £3.6bn despite the volume falls, but currency headwinds pushed headline sales 3.6% lower overall than a year ago.
The combined hygiene and health portfolio, which includes Finish, Lysol, Durex and a number of OTC brands, recorded growth of 6.7%. However, this was offset by an 11.9% slump in its nutrition business as it lapped peak market shares during the US supply shortage in 2022.
CEO Kris Licht said the group had posted “a strong quarter” despite the headline sales and volumes drop. He said the group remained “firmly on track” to hit full-year market expectations despite US nutrition headwinds.
He also announced new strategic priorities, including the removal of the guidance of “mid-twenties-margins” by the middle of the decade. This is now replaced by “growing operating profits ahead of revenues, and a focus on reducing fixed costs in the business”. Reckitt also unveiled the start of a £1bn share buyback programme to redistribute cash back to shareholders.
However, Reckitt shares fell 4% on the news back to 5,678p on the weaker-than-expected volume performance.
Jefferies commented: “The strategy update seemed to leave investors underwhelmed, with arguably a diminished commitment to margin delivery and productivity ambitions.”
It said the share buyback had been largely priced in by investors, but additionally: “A more downbeat interpretation though is a signal of less pioneering plans with regard to portfolio development via acquisition.”
Bernstein added: “We doubt whether today the relief at the sensible updated strategy will be enough to offset the disappointment at the Q3 volume miss.” It also questioned whether Reckitt’s categories were “strong enough to support guidance” of mid-single-digit organic growth.
Reckitt shares are down 3.2% year to date and down by 10.5% over the past six months.
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