Reckitt: Consensus Beat Sends Shares Higher Despite Anemic Hygiene Performance

In its third-quarter trading update, wide-moat Reckitt reported a like-for-like net revenue decline of 0.5%, ahead of the negative 1.7% company-compiled consensus. As expected, the nutrition segment entirely drove the decline, with organic net revenue down 17.4%. Sales for the segment were affected by a supply chain disruption caused by tornado damage to an infant formula warehouse in Mount Vernon, Indiana. The impact is lower than initially expected, with management now guiding for a high-single-digit full-year net revenue decline for the segment compared with a low-double-digit decline previously. Still, the full-year outlook for the group was maintained, calling for organic sales growth of 1%-3% and adjusted operating profit growth ahead of net revenue growth. We believe this is motivated by a slightly worse-than-expected performance for the hygiene segment, which delivered like-for-like net revenue growth of 2.1%, behind the consensus of 2.7%. This represents a slowdown compared with the 4.5% organic growth reported for the first half of 2024 as the pricing contribution to net revenue growth is decelerating and volume remains soft, at 0.7% in the quarter. We don’t expect to make any material change to our forecast or our GBX 6,500 per share fair value estimate. At current levels, shares trade in 4-star territory.