Today I am looking at the earnings outlook for Reckitt Benckiser Group (LSE: RB) (NASDAQOTH: RBGLY.US) for the coming year.
Earnings ready to recover
While signs of slowing consumer spend in developing markets has whacked confidence in firms with heavy exposure to these regions, but Reckitt Benckiser has concocted the right formula to keep sales growth ticking over in these areas.
Rather, the household goods leviathan actually continues to grow revenues in these high-growth regions. Reckitt Benckiser — which currently sources around 28% of core turnover from Latin America, Asia Pacific, Australasia and China, and 16% from Russia, the Middle East and Africa — saw like-for-like sales surge 11% and 6% respectively in these geographies during January-September.
Critically, Reckitt Benckiser also continues to grab customers in the more constrained markets of North America and Europe. The firm reported underlying like-for-like growth of 3% during the first nine months of 2013, regions that are responsible for 56% of total turnover. And I expect a backdrop of economic recovery and thus spending power, particularly across the Atlantic, to power sales higher in 2014.
The impact of Federal Reserve tapering in 2014 on consumer activity across the globe has brought predicted sales growth for the likes of Reckitt Benckiser under the microscope. But as I have previously argued, I believe that monetary policy at the bank is likely to remain loose for some time — indeed, the Fed’s decision to scale back bond purchases by just $10bn per month, and pledge to keep rates at super-low levels until unemployment is reined in, is testament to this.
In addition, management has been hinting for many months now at the prospect of conducting further M&A activity — particularly in the vastly-fragmented and highly-lucrative consumer health market — in order to facilitate future growth. I believe that the company’s excellent acquisition record and considerable financial power to result in fresh action sooner rather than later.
Although Reckitt Benckiser has punched sturdy earnings growth over many years — the firm boasts a compound annual growth rate of 13.6% over the past five years alone — expansion has gradually slowed during the period. And City analysts expect earnings to actually fall this year, albeit by a modest 1% to 264.8p per share.
The firm is expected to get back on track in 2014, however, with a 2% rebound to 268.7p per share chalked in. This projected figure leaves the firm dealing on a P/E rating of 17.9, above a forward average of 15.3 for the complete household goods and home construction sector and a mile away from the value watermark of 10.
However, for investors looking for solid long-term growth prospects I believe that Reckitt Benckiser is a great stock market pick. Through product innovation across its stable of ‘Powerbrands’, from the likes of Durex condoms and Finish dishwasher tablets, the company has been able to grow its market share, drive into new geographies and push revenues higher even in times of severe macroeconomic pressure. I expect earnings growth to move steadily higher in 2014 and beyond.