Citi has revised down its forecast for Reckitt Benckiser Group PLC (LSE:RKT, ETR:3RB), reflecting a more cautious assessment of prospects for the consumer goods giant, particularly in the short term.
Citi has reduced its earnings per share (EPS) estimates for Reckitt for the years 2023 and 2024. The 2023 EPS forecast has been lowered by 0.5%, and the 2024 estimate by 2.7%.
This downgrade is attributed to a combination of lower-than-anticipated organic sales growth (OSG) in certain segments, such as nutrition and flu, and increased finance charges.
For the fourth quarter (Q4), Citi expects Reckitt's OSG to be around 1.6%, with a notable decline in volumes by approximately 3%.
This drop is observed in the hygiene, flu and US infant formula and child nutrition (IFCN) sectors. Specifically, the hygiene segment is anticipated to see an OSG of 7.3%, Health at 1.4% (with respiratory products down by 8%), and IFCN declining by 11.5%.
Looking ahead to the financial year 2024 (FY24), Citi predicts that Reckitt Benckiser, the maker of Vanish cleaning products and Durex condoms, will guide towards a 2-4% OSG and a moderate improvement in margins.
These projections align with Citi's own forecasts, which anticipate a 2.7% increase in FY24 OSG and a 0.3 percentage point increase in margins to 23.8%.
However, the bank anticipates a challenging first half of the year, with the first quarter being particularly weak (OSG at 1.1% and a 12% decline in IFCN) and the second quarter (Q2) still lagging behind industry peers.
Citi also notes that the consensus on FY24 EPS may need to be reduced further by 2-3% to accurately reflect the challenges in the nutrition sector, both in terms of volumes and margins, as well as the impact of finance charges.
The bank expresses concern that a more positive outlook for Reckitt may only emerge after expectations have been sufficiently lowered to allow for a potential recovery in the second half of the year.
In afternoon trading, the stock was trading sideways at £54.26.