For years, the market has assumed that big consumer goods companies had such strong brands that it was easy to pass on any extra costs to the customer in the form of higher prices.
“Unilever recently showed that wasn’t quite the case, and now Reckitt has also poured cold water on that theory. Its margins have taken a hit from higher raw material costs,” said AJ Bell’s Russ Mould.
“Importantly, Reckitt says it will take time to offset inflationary headwinds with productivity and pricing actions. That might come as a surprise to people who might have thought it easy to slap on a 10% increase to the price of its products.
“To make matters worse, Reckitt has confirmed that disinfectant demand has weakened from peak-Covid levels. This was always a risk to its earnings, as a surge in demand during 2020 was linked to widespread consumer fears about catching the coronavirus.
“With lockdown restrictions now eased and so many people vaccinated, it is feasible to suggest that we will all probably clean more than pre-Covid, but not to the extreme levels seen at the height of the pandemic.
“Reckitt continues to show weakness, having previously made strategic mistakes with acquisitions.
“With consumers increasingly flocking to cheaper supermarket own-label products, the idea that the big brand owners are guaranteed sales success is no longer a given. Margin weakness only adds to the bear case for Reckitt.”