Shares in household and personal care group Reckitt Benckiser (LON:RKT) rallied 5% after the firm posted forecast-beating Q2 sales and launched a fresh buyback. The firm said strong demand in emerging markets helped offset weaker European sales and disruption in the Middle East.
Accelerating growth
For H1 to June, Reckitt reported core LFL sales growth of 2.7% along with 2% growth at Mead Johnson Nutrition. Sales growth accelerated to 4.2% in Q2 against a consensus of 3.6% and 1.3% in Q1 thanks to higher volumes.
Growth was balanced during Q2 with volumes up 2% year-on-year and price/product mix contributing a 2.2% increase. All regions delivered stronger organic revenue growth during the quarter, led by emerging markets up 9.4% against 7.6% in Q1.
North America returned to growth in the quarter, with sales up 2.8% against -0.9% in Q1. Meanwhile, Europe saw improved volumes in all categories as sales dipped 1.5% compared with a 4.2% drop in Q1.
By product category, germ protection showed the strongest growth at 10.5%. Reckitt’s ‘powerbrands’ include Dettol, Lysol and Harpic, with the firm singling out Dettol’s outperformance in China as a driving factor.
CEO Kris Licht said the group was ‘delivering on its plan’ for H2 and reiterated its FY financial targets. Licht also announced a 5% increase in the interim dividend and a new share buyback of up to £500 million.
Reckitt Benckiser has to be one of the dullest stocks on the planet, which makes it an ideal place to park money when markets get choppy. Now, however, the group is starting to see sales growth accelerate, which makes it an interesting investment in its own right.
The group’s ‘powerbrands’ are genuine global leaders, which means they enjoy a degree of pricing power. What investors want to see though is volume growth and an improving product mix, so margins and earnings go up more than sales.
The firm isn’t quite there yet, with H1 adjusted EPS down around 10%, which mainly reflects the sale of its Essential Home portfolio. But by backing its FY targets, raising the dividend and buying back shares the board is signalling its confidence.
Despite today’s move up, the stock is still down 12% on the year and close to a 20-year valuation low. If it can keep delivering over the next two years, and the valuation can mean-revert, there is considerable upside.
Disclaimer: The author owns shares in Reckitt Benckiser
