The Reckitt Benckiser share price has risen 10% since Thursday. Optimistic full-year results have vindicated CEO Laxman Narasimhan's repositioning strategy, as revenue is expected to increase a further 1-4% in 2022.
The Reckitt Benckiser (LON: RKT) share price has risen 10% from 5,802p to 6,369p after reporting strong 2021 full-year revenue. And as the company repositions its brand portfolio, it predicts further revenue growth of 1%-4% in 2022.
Reckitt Benckiser shares have already recovered from their 5,448p low of October 2021. They were worth as much as 7,754p in July 2020 and could be returning to this price point soon.
Reckitt Benckiser share price: full-year earnings
Thursday’s results were positive for the hygiene and consumer healthcare stock. Full-year net revenue rose 3.5% to £13.3 billion, and 17.4% on a two-year stacked basis, led by ‘by a strong performance in Hygiene and a recovery in Health as we exited the year.’ In Q4, revenue grew 3.3% year-over-year, beating the 1.9% growth expected by analysts in a company-supplied poll. However, the 17.5% growth of its healthcare business masked hygiene’s 6.1% fall.
Fortunately for the FTSE 100 stock, it maintained ‘strong momentum’ as ‘brands less sensitive to COVID dynamics, representing c.70% of the portfolio grew, on average, by mid-single-digits in each quarter of 2021.’
CEO Laxman Narasimhan said ‘Over the last two years, we’ve significantly strengthened our business. Our innovation pipeline is 50% larger, our brands are stronger and more relevant, and our ability to serve our customers and consumers is greatly improved. We’ve taken Reckitt’s strong performance-driven culture, with its unique sense of ownership, and are evolving it for the better.’
And JP Morgan analyst Celine Pannuti agrees with his positive outlook, saying ‘Reckitt delivered a solid full-year result, and a reassuring 2022 outlook should not only be supportive today but also puts the turnaround story on fast track.'
Inflation and transformation
But Reckitt has spent last year fighting cost inflation, which rose 11% in 2021. And in last week’s earnings call, CFO Jeff Carr told investors that this would be ‘higher than that in 2022…across the board’ and that ‘anything related to crude oil’ was facing increasing inflationary pressure. He specifically highlighted ‘an over 20% increase in logistical costs, ocean freight being one of the key drivers.’
Brent Crude is now hovering at around $100 a barrel. And RBC Capital Markets analyst Michael Tran believes ‘there is meaningful upside running room before demand destruction potentially takes hold.’ John Driscoll at JTD Energy Services predicts it could rise to $150 a barrel by summer, especially if Russia decides to invade Ukraine. And with 80%-90% of global trade volume moving by sea, the cost of shipping a 40-foot container from Asia to the US rose by 330% to $26,000 in 2021.
However, Narasimhan said the company has ways to ‘mitigate and manage pricing…we care about the competitiveness of our brands.’ And Carr concurred, saying ‘we are passing some pricing onto consumers but we minimise that through the programmes we have…to absorb those cost increases.’ With the cost-of-living crisis escalating, price increases could result in revenue falls as consumers would resort to generic products.
But Reckitt Benckiser has made ‘strong progress in repositioning our business towards higher growth.’ It’s divested lower margin business IFCN China and Scholl while planning a further disposal of E45 and acquisition of Biofreeze. It repositioned 9% of its brand portfolio in 2021 and grew e-commerce revenue by 17%.
Narasimhan believes the company is ‘showing positive momentum with 62% of our core CMUs holding or gaining share.’ And he is targeting ‘an increase in adjusted operating margin in 2022,’ up from the current 22.9%. And despite the current inflationary pressures, he thinks Reckitt Benckiser has ‘a unique portfolio of trusted, market-leading brands in structurally attractive categories with significant headroom for growth.’
Moreover, it appears to be holding on to most of its pandemic sales growth. Lysol sales are up 90% and Dettol sales up 40% compared to 2019. Q4 sales of its intimate brands, including Durex condoms, KY lubricants, and Veet hair removal products, rose by 15%. Its over-the-counter drugs, such as Strepsils and Lemsip, rose 40% in the quarter. And as pandemic restrictions end, the company expects sales of these products to rise even further.
With strong brand loyalty and rising revenue, the Reckitt Benckiser share price could rise soon.
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Charles Archer | Financial Writer, London
22 February 2022