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Reckitt Management Call Concluded - Key Points

CONSUMER STAPLES
  • Mgmt holding onto its hardline/confident view with a repeat of its statement on Friday - denying Enfamil causes NEC and/or there wasn't any sufficient warning of any risks & "strongly disagrees with verdict". Its confident on appeal.
  • Legally its clarifying this was a state procedure and not part of the Federal grouping of multidistrict (MDL) cases (reported ~400+ in this) - for reference reports are a select 4 MDL "bellwether" cases will first go to trial & company did confirm that none of these trials had been scheduled yet (it sees them starting no earlier than 2025).
  • It does not provide number of cases - as we highlighted its saying this is because cases are mixed between referencing Enfamil & a competitor (its likely referring to ABT's Similac here). It says it has 44% market share in hospitals as a point of reference. Mgmt adds premature formula is less than 10% of group revenues.
  • No change to capital allocation plans (dividends/buybacks) - this should increase credit spreads beta to any updates (so far equities have been the mover on assumptions of divvy/buyback cuts).
  • Our take from it; Management is confident but there's little clarity on specifics around legal risks & the timeline of Federal cases beginning only next year is not attractive for investors. Mid's are another +5-7 wider today, we would still stay clear of the name (alongside ABT).
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