Reckitt Benckiser’s 2023 full-year results are a blow to investors. Expectations were conservative, yet the company missed revenue guidance, and shares fell accordingly.
The company was expected to generate £14.75bn revenue in 2023. However, the impact of the cost-of-living crisis meant the owner of brands including Strepsils, Nurofen, Durex, and Dettol, only brought in £14.61bn.
In percentage terms, the miss wasn’t amazingly drastic, but this is a low-margin business reliant on high volumes.
The impact of higher input costs and lower-than-expected revenues devastated operating margins which fell by 5.2% to 17.3%. Diluted EPS fell 29.6%.
“Shareholders of Reckitt Benckiser will be disappointed with this morning’s Q4 earnings update, as the consumer goods retailer missed net sales expectations for the period, citing weakness in cold and flu season products, managing only minimal net revenue growth of 3.5%,” said Mark Crouch, analyst at investment platform eToro.
Reckitt Benckiser shares were 10% lower at the time of writing and were approaching the lows of the pandemic.
The company has been seen as a safe haven traditionally but Reckitt’s is rapidly losing this categorisation as consumers shun expensive brands in the face of rising prices.
The pricing gap between budget options and Reckitt’s premium offering is growing while the perception of quality is narrowing. This is a big problem for a company that needs growing sales to support profitability.
“So much for the idea that big brand owners are bulletproof during periods of higher inflation. It’s clear from industry trends that cash-strapped consumers have shifted to cheaper alternatives including supermarket own-brand items,” said Russ Mould, investment director at AJ Bell.
“As the owner of a large portfolio of well-known brands, Reckitt has found life a lot tougher and its latest results suggest its pricing power isn’t as strong as some people thought. The idea that it can keep pushing up prices without damaging demand has gone out the window as its fourth quarter numbers are truly miserable. It looks like people are voting with their feet and going for the cheaper option.
“Reckitt’s results are plagued by a multitude of problems. Sales volumes fell 4.3% in the fourth quarter which is a worrying sign for the company. It reported declining health sales, a big drop in nutrition revenue and revealed that some employees had been up to no good with regards to accounting issues in the Middle East. For a company that was once seen as an industry leader, Reckitt has been a big disappointment in recent years and the latest results keep that theme going.”