Reckitt Benckiser: too many sterile quarters leave share price flat

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Retailers regularly move cleaning products around on their shelves to stimulate sales. Reckitt Benckiser has also done some shuffling of its executive team. Hopefully, it will have the same galvanising effect.

On Wednesday, the FTSE 100 consumer goods company appointed a new chief financial officer, Shannon Eisenhardt. She and incoming chief executive Kris Licht, formerly of PepsiCo, have work to do to get Reckitt growing again.

Reckitt specialises in cleaning products. Good thing. Dust has settled on the company’s share price. Over one year Reckitt has fallen 12 per cent. MSCI’s consumer staples benchmark has only fallen a little. Even at a decade-low forward price/earnings ratio of some 16 times, investors show little interest.

It cannot help that Reckitt has already rearranged its executive team a couple of times since Rakesh Kapoor retired in 2019. Licht is the third chief executive in that time.

Eisenhardt’s experience at Nike, and before at Proctor and Gamble, includes work on emerging markets. This is 40 per cent of Reckitt sales. She inherits a financially fit company. Reckitt has plenty of free cash flow. Analysts on Visible Alpha anticipate £2.5bn annually through 2025. More than half will go to the dividend. Licht wants to increase this and buy back stock. Net debt is relatively low.

Eisenhardt still needs to squeeze more from revenues, though. Over the past five years, the group’s top line has compounded at 3.6 per cent annually, according to S&P Capital. Operating profit has hardly shifted. True, after some innovative product launches its big disinfectant brand Lysol generates 50 per cent more sales than in 2019.

Yet, clever tinkering with its stock of brands will not suffice. Reckitt should consider spending some cash on acquiring growth brands.

Neither PepsiCo nor Nike are noted for their M&A programmes. Licht and Eisenhardt may therefore need to brush up their skills before striking any big deals. Kapoor’s incumbency at Reckitt was marred by the overpriced $18bn purchase of US baby milk producer Mead Johnson in 2017.

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