Reckitt
On the surface, Reckitt’s earnings per share growth of 20 per cent, almost four per cent ahead of what was expected is good, but the absence of its usual full-year profit guidance upgrade is worrying.
Weak demand in Europe, a niggle in the first-quarter, has now become a full-blown crisis with the second quarter seeing growth grind to a halt and explains the lack of an upgrade – customary for the past four years.
Europe generates over 40 per cent of the group’s sales, and this quarter where growth has dwindled to below one per cent, marks the first quarter-on-quarter sales decline in the region.
The decline makes it clear that it will be all but impossible for Reckitt to exceed its full-year annual sales and profit growth targets of five and 10 per cent respectively.
And the shares, which have risen 17 per cent in the past year, are now likely due a correction.
Yes, Reckitt remains relatively cheap, currently trading on a 2010 price to earnings ratio of 15.7 times, but the European growth that has fuelled the shares stratospheric rise is now firmly set on pause.
Investors should cash-in now to avoid the likely lull, and use the cash to invest in faster-growing rivals such as Procter &?Gamble.