Down 18% On The Year, Reckitt (LON: RKT) Refocuses by Shedding Units

Reckitt shares (LON: RKT) have had a difficult time so far in 2024, with an 18% drop a far cry from what holders would have wanted. It should come as welcome news then that in a strategic shift, Reckitt Benckiser Group has announced plans to narrow its focus on prominent health-related brands, such as Durex and Gaviscon, by divesting its home care products and withdrawing from its Mead Johnson Nutrition business.

This move comes against the backdrop of market challenges that have seen Reckitt's shares stagger, particularly after a legal decision that ordered a $60 million payout to a mother whose infant tragically passed away after consuming Enfamil infant formula manufactured by Mead Johnson Nutrition.

Despite these tribulations, the company's shares surged by 4% when the intention to concentrate resources on high-performance “Powerbrands” such as Lysol, Veet, and Nurofen became public. These brands are pillars of the company's portfolio and central to Reckitt CEO Kris Licht's vision of restructuring the business into a preeminent consumer health and hygiene entity, characterized by robust growth and solid profit margins.

However, Reckitt's financial health suggests some caution. A respected consumer goods group, they reported a disconcerting 2.8% fall in sales to GBP3.43 billion and predicted a muted performance for the rest of 2024. External forces, such as the fallout from the Mount Vernon tornado disrupting their nutrition supply chain, coupled with heightened market competition, have prompted this conservative outlook.

Market analysts, particularly those from Citi, harbour reservations about Reckitt's potential to offload its Mead Johnson Nutrition arm. Concerns hover over the clarity of a safe exit from the unit without exacerbating the liabilities stemming from the ongoing legal issues in the U.S. infant formula case.

As Reckitt Benckiser Group navigates this transitional phase, the key to success lies in the delicate balance between shedding underperforming assets and bolstering its core brands that promise sustainable growth. The direction headlined by CEO Kris Licht is critically scrutinized by stakeholders eager to witness the burgeoning of a leaner, more efficient Reckit focused soundly on health and hygiene.