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Reckitt Benckiser Group PLC ADR RBGLY

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Reckitt Misses on First-Half Margins but Has the Pricing Power to Rebuild Margins For Next Year

Analyst Note

| Philip Gorham, CFA, FRM |

Reckitt missed our forecasts at the gross margin in the first half of 2021 due to rising commodity costs. Given the continuing spikes in raw materials in recent months, it is unlikely to be the last company to do so this reporting season. With inflationary pressures currently greater than Reckitt’s ability to raise prices, we expect the gross margin to continue to be weak in the short term, with further margin degredation in the second half of the year. However, the market sell-off of the stock is an overreaction, in our view, and we do not believe this report wipes 8% off the intrinsic value of the stock. In fact, we believe Reckitt is better positioned than most to pass through the cost inflation to consumers, with parts of the consumer health and formula businesses holding fairly strong pricing power. Nevertheless, we are lowering our gross margin estimates for this year and next, and we are cutting our fair value estimate to GBX 6,500 per share from GBX 6,800 to reflect the short-term margin squeeze. We think the sell-off has created a somewhat attractive entry point.

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Company Profile

Business Description

European firms Reckitt & Coleman and Benckiser combined in 1999 to form Reckitt Benckiser, which recently rebranded to the corporate name Reckitt. The firm's products include a variety of household and personal-care brands, such as Calgon, Lysol, Finish, and Mucinex, many of which have the number-one or -two position in their categories. More recently, Reckitt has repositioned its portfolio, and has entered infant formula through the acquisition of Mead Johnson, expanded its consumer health presence by acquiring SSL International, Schiff Nutrition, and K-Y, and has exited the food industry. The firm operates in 60 countries and sells products in more than 200, generating around 40% of sales from emerging markets.

103-105 Bath Road
Slough, Berkshire, SL1 3UH, United Kingdom
T +44 1753217800
Sector Consumer Defensive
Industry Household & Personal Products
Most Recent Earnings Dec 31, 2011
Fiscal Year End Dec 31, 2021
Stock Type
Employees 38,945


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