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Questor is The Telegraph’s stock-picking column, helping you decode the markets and offering insights on where to invest.
Reckitt’s latest quarterly results were not well received by investors.
Shares in the FTSE 100-listed global consumer goods company – which owns brands such as Dettol, Finish and Gaviscon – slumped by 6pc on the day of its results release last month.
This response was unsurprising given that the firm, formerly styled as Reckitt Benckiser, delivered disappointing top-line growth during the period. Like-for-like sales growth, for example, amounted to just 1.1pc. Volumes declined by 1.9pc, with price increases of 3pc being the reason for positive sales growth overall.
Of course, investors are also likely to be concerned about the company’s future prospects amid an uncertain period for the world economy.
The imposition of tariffs on US imports is, after all, set to have a detrimental impact on global growth. This could prompt a challenging period for consumers at a time when inflation remains above central bank targets and cost-of-living pressures remain.
With Reckitt generating 10pc of its core revenue from China, as well as 30pc of its total sales from the US, the firm has substantial exposure to the very heart of the global trade war.
In Questor’s view, further share price volatility is therefore relatively likely in the short run. Developments regarding US trade barriers could have a significant impact, either positively or negatively, on the company’s market valuation in the coming weeks. Over the long run, though, the prospects for the stock could be far more upbeat than many investors currently anticipate.
While US tariffs will almost certainly negatively affect global GDP growth, they could encourage a faster pace of monetary policy easing that catalyses economic activity. This may have a positive impact on wage growth that equates to a gradually improving outlook for consumers. Given the world economy has always recovered from even its very worst setbacks, the long-term outlook for Reckitt’s operating environment remains positive.
The company’s shift in strategy could act as a further catalyst on its financial and share price performance.
It is seeking to exit its essential home division and is also considering the future of its Mead Johnson infant formula segment. Although it will inevitably take time for the business to reorganise its operations, especially given current heightened economic uncertainty, the company’s focus on its fastest-growing major brands could pay off. In the first quarter of the year, for example, the firm’s core operations delivered like-for-like sales growth of 3.1pc.