It’s certainly been a tale of two halves – well, ish – for the FTSE 100 firm. In early February it announced it was in talks to buy Mead Johnson, an infant formula manufacturer with 14% of the worldwide baby food market. Investors were impressed, and though the confirmation of this near $18 billion purchase a week later was muddied by a Q4 like-for-like sales miss, the stock was soon bouncing between £72.50 and £75.
April’s Q1 update couldn’t do much for the company, with Reckitt failing to grow its comparable quarterly sales for the first time in 15 years. Yet the stock was spurred on by the progress of the Mead Johnson deal and prospective sale of its food division. This climb took Reckitt Benckiser to a £81-tickling all-time high at the start of June, capping a remarkable few years for the company.
It was here the stock started to crumble. Wider retail sector fears plagued Reckitt in June despite the completion of the Mead Johnson acquisition, while early July saw the firm state that the ‘NotPetya’ ransomware cyber-attack could cost it around £100 million in revenue due to disruptions to production and deliveries. The sale of its food business to McCormick (NYSE:MKC) for $4.2 billion provided a bit of a good news, sending the stock back towards £80 on 19th July. However, the company’s half year results 5 days later were a disaster.
First and foremost, the aforementioned cyber-attack forced Reckitt to cut its full year revenue growth target from 3% to 2%. The company also revealed it had set aside £318 million to cover the costs of a potential US investigation into Invidior, the pharma-firm it spun off in 2014, while warning the final cost could be ‘materially higher’. The bitter cherry on top? A 1% drop in interim like-for-like sales.
The company was further hurt by the news in mid-September that its biggest shareholder – JAB Holdings – was cutting its stake from 8.9% to 7.9%, sending Reckitt to an 8 month low of £67.50. The stock has admittedly picked up in the last week or so, however, with ‘Buy’ ratings from Deutsche Bank (DE:DBKGn), Morgan Stanley (NYSE:MS) and Berenberg leaving Reckitt Benckiser at a current trading price of £71.17.
In terms of its Q3 report Reckitt at the very least needs to see a turnaround in its like-for-like sales performance. The avoidance of any further nasty surprises would help; ditto an update on the integration of Mead Johnson.
Reckitt Benckiser Group PLC (LON:RB) has a consensus rating of ‘Hold’ with an average target price of £79.83.
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