The floundering Reckitt (LSE: RKT) share price desperately needed a lift from this morning’s full-year results but it didn’t get it.
Today’s (28 February) announcement fell flat, with Q4 revenues down 1.2% and general performance weaker than investors had expected. Reckitt did post a 3.5% rise in full-year like-for-like revenues to £14.6bn, but it wasn’t enough for markets. The stock is down almost 10% as I write this.
Long-term investors have little to show for their loyalty and now they’re suffering again. Reckitt shares are up a meagre 0.14% over one year and 1.14% over five years. That’s marginally better than FTSE 100 rival Unilever, down 6.64% over one year and 1.82% over five, but it still a rotten return, even with dividends.
The personal care group has slipped off my radar in recent years. While I bought Unilever in June last year (and often wish I hadn’t), it’s a long time since Reckitt tempted me. But has that now changed? Let’s find out.
Disappointing
This has never been a great dividend stock. After today’s share-price drop, the yield has jumped from 3.14% to 3.47%. That’s better but still below the FTSE 100 average of around 3.9%. There was some good news here, though, as the board hiked the full-year dividend by 5% to 192.5p per share.
CEO Kris Licht called 2023 “a year of progress for Reckitt”, hailing a good trading performance in its Health and Hygiene division, while Nutrition “began rebasing and held market leadership in the US”.
Positives included driving gross margins back to historical levels, increased investment in its brands and innovation, and strong free cashflow.
Licht reminded disgruntled investors that Reckitt has “significantly increased cash returns to shareholders”, including a new, sustainable share buyback programme. Yet even he admitted that Q4 performance was “unsatisfactory”.
So much for 2023. What can we expect going forwards? Reckitt still boasts an array of established everyday brands like Air Wick, Harpic, Dettol and Nurofen. It needs to work hard on Nutrition, though, which is still reeling from an 11.9% drop in sales in Q3. This was largely down to a “rebase” in demand, as sales of disinfectant brands like Lysol and Finish fell as the pandemic receded. Nutrition should return to growth in the second half of 2024, Licht said.
Now we need some growth
Last October, broker Berenberg downgraded Reckitt and said it was “difficult to identify a catalyst” for a share-price recovery. Reading over today’s results, I’m not sure I can find one today. It may get support from a broader economic recovery, once inflation is defeated and interest rates start falling, but that applies to a whole heap of companies.
Like Unilever, Reckitt has also been hit by emerging market volatility, and a recovery here would be welcome. At least China, India and Latin America offered some solace.
Nobody wants to end the financial year on a low, but that’s what Reckitt has just done (and then some). I’m particularly concerned by reports of tough competition in the US eating into revenues from this key market.
Reckitt trades at 17.03 times, compared to the 22 times I was used to. I wouldn’t call it a bargain, though, let alone unmissable. I’ll stick with Unilever but won’t be adding Reckitt to my portfolio.
