October has proved to be a month to forget for Reckitt Benckiser Group (LSE: RB). The household goods manufacturer hit the ground running by posting one-year highs above £71 per share, but soon succumbed to the washout we witnessed across all share markets. In total it has lost 10% of its value this month, a disappointing set of financials released in that time having compounded investor bearishness.
The Nurofen and Durex maker declared just yesterday that manufacturing difficulties at its baby milk factory in Europe meant that it was unable to meet strong demand. As a consequence, revenues for the third quarter took a hit to the tune of around £70m.
What’s more, although the disruption has now been resolved, Reckitt warned that it expects some residual impact through the remainder of the year and into 2019. This is the worst possible start the business could have had after snapping up US formula giant Mead Johnson back in 2017.
Developing markets still performing
Disappointing news, no doubt. But aside from these woes, the FTSE 100 firm’s latest release provided plenty for glass-half-full investors to get their teeth into.
Time and again I’ve celebrated what the firm’s extensive developing market exposure should mean for future profits growth. And I’m pleased to see that in this regard its Q3 numbers didn’t let me down.
Okay, like-for-like sales of its Health products may have dipped 1% between July and September, but this reverse can be explained away by those production problems I mentioned earlier. Indeed, the brilliant sales potential of its products in these future economic powerhouses was underlined by a 12% like-for-like sales improvement at the company’s Hygiene Home arm.
Of course the company isn’t immune to a little earnings turbulence from time to time but, over the long term, investors can expect the Footsie firm to deliver decent profits growth thanks to the strength of its product catalogue, its dedication to innovation, and its broad geographic footprint.
In fact, these qualities mean that Reckitt is still expected to record a 2% earnings rise in 2018, despite those problems at its Dutch milk powder facility. And City brokers believe it will follow this year’s anticipated rise with a further 8% improvement in 2019 too.
Dividend dynamo
The recent share sale I spoke about earlier means that the firm can be picked up on a forward P/E ratio of 19.3 times. This isn’t exactly cheap from a conventional perspective, the reading sitting outside the widely-regarded value terrain of 15 times and below. But compared to its traditional, elevated, valuations the company can be considered a snip at the current time.
Besides, its status as a reliable profits grower means that it remains a good pick for those seeking dividend rises as well. A 168.5p per share reward is forecast for this year, up from 164.3p last year, and a 180.9p payout is forecast for 2019.
These forecasts yield a chubby 2.7% and 2.9% respectively, and are covered 2 times by anticipated earnings, bang on the accepted security benchmark. While bigger yields can be found on the FTSE 100, I think Reckitt Benckiser is in much better shape than most to continue raising the dividend year after year. It’s a white-hot buy right now, I believe.
