Wide-Moat Reckitt's Nutrition Segment Is a Significant Drag on Performance Going Into 2024

Reckitt’s portfolio is well positioned in categories that benefit from secular growth drivers across consumer health and hygiene, which should translate into growth ahead of its peer group in the midterm. The acquisition of Mead Johnson has added to its portfolio a leadership position in infant nutrition—a segment with pricing power and generally sound margins. However, the timing of the transaction, ahead of a period of declining birthrates and intensified competition in China, posed significant challenges and has dampened revenue growth in the last few years. Management sold the infant nutrition business in China in 2021, and the future of the remaining core infant nutrition business remains uncertain. While we believe the segment’s reduced size presents an opportunity for management to refocus on faster-growing businesses—positioning them for longer-term success past the peaks in demand generated by the coronavirus pandemic—further secular declines in birthrates in the U.S. could continue to be a drag to the company’s mid-single-digit growth ambitions. Nonetheless, we expect the worst is behind the company.