Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Reckitt Benckiser Group PLC (RBGLY, Financial) reported strong free cash flow growth of 8% in the first half of 2024.
- The company saw good gross margin expansion in the first half, driven by innovation platforms and cost optimization programs.
- Reckitt Benckiser Group PLC (RBGLY) increased its interim dividend and announced a GBP1 billion share buyback program over the next 12 months.
- The health and hygiene portfolio returned to growth with volumes up 0.4% for the half.
- The company is confident in its future, driven by positive underlying momentum and a more balanced trading environment post-inflationary cycle.
Negative Points
- Reckitt Benckiser Group PLC (RBGLY) revised its group outlook for the year from 2%-4% like-for-like net revenue growth to 1%-3% due to a tornado impacting its Mount Vernon warehouse.
- Group like-for-like net revenue growth in the first half was only 0.8%, with a flat performance in Q2.
- The nutrition segment saw a 9% decline in like-for-like net revenue, primarily due to continued rebasing in the United States.
- The percentage of top CMUs holding or gaining share declined to 38%, driven by challenges in the nutrition segment.
- The company faces a more competitive environment in developed markets, particularly in the US and Europe, impacting its hygiene business.
Q & A Highlights
Q: Is destocking in the US for health now over, and can you provide details on the phasing of the fixed cost optimization and restructuring?
A: Yes, we believe destocking is behind us. Retailer inventory levels in the US are similar to a year ago. The restructuring and transformation costs will occur over a 3.5-year period, likely more front-half weighted. (Shannon Eisenhardt, CFO)
Q: Are you happy with the results under the current strategy, given the market share data in hygiene and health?
A: No, I'm not satisfied until all our businesses are above 60% market share. Health is showing good trends, and hygiene remains competitive. We make smart choices to deliver financial performance without matching overly aggressive promotional behavior. (Kris Licht, CEO)
Q: Will you return surplus cash to shareholders, and are you considering medium- or large-size acquisitions?
A: We are committed to returning excess cash to shareholders, including proceeds from any transactions. Large acquisitions are not in the cards right now; we will focus on organic growth and possibly tuck-in acquisitions. (Kris Licht, CEO)
Q: How will the fixed cost optimization impact the new operating units, and what are the strategic options for nutrition?
A: We expect to pull 300 bps of savings from the entire portfolio, not reliant on successful transactions. Nutrition is relatively standalone, and we will explore all strategic options, including potential carve-outs. (Shannon Eisenhardt, CFO; Kris Licht, CEO)
Q: Can you provide more detail on the promotional environment and H2 margin outlook?
A: The promotional environment is more competitive, especially in North America and Europe, but this was expected. For H2 margins, we expect to come in line with full-year margin rate consensus, with better-than-expected H1 margins due to phasing of investments. (Kris Licht, CEO; Shannon Eisenhardt, CFO)
Q: Who will be in charge under the new structure, category managers or country managers?
A: The geographies will be accountable for P&L delivery, while category managers will handle long-term strategy and innovation. Collaboration and teamwork will be essential. (Kris Licht, CEO)
Q: Will the Mead Johnson Nutrition business be sold while litigation is ongoing?
A: We will explore all options and take the time needed to find the right solution. We are not ruling out the possibility of a sale during litigation. (Kris Licht, CEO)
Q: How will the strategic changes impact Reckitt's scale and exposure to OTC volatility?
A: We will maintain scale in key geographies and gain operational scale in Europe. While we will be more exposed to OTC, we expect a more normal trading environment and are excited about the growth potential in non-seasonal OTC businesses. (Kris Licht, CEO)
Q: How quickly can you recover the GBP150 million lost revenue due to the tornado?
A: We expect to recover fully by 2025. The disruption is short-term and largely contained to Q3. (Kris Licht, CEO)
Q: Can you quantify the dissynergies from the separation of non-core units?
A: We are committed to minimizing dissynergies and managing costs effectively. Specific numbers will be shared as transactions shape up. (Shannon Eisenhardt, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
