Morning Note: Market news and updates from Reckitt Benckiser and Heineken.

Market News

Precious metals experienced a savage pull-back yesterday, with gold (-6%) dropping by the most since 2013 and silver (-8%) recording its worst day since 2021. The sell-off was largely a function of the preceding massive run-up to record highs that pushed technical indicators further into overbought territory. Liquidity dynamics are thought to have played a role in the volatility following last week’s LME silver squeeze and record inflows into gold ETFs. Gold currently trades at $4,130 an ounce.

President Trump again voiced optimism of a deal when he meets Xi at the APEC summit. He reiterated the threat of an additional 100% tariff if there’s no deal by 1 November along with other potential actions like cutting off shipments of commercial airline parts. Trump said he doesn’t want “a wasted meeting” with Vladimir Putin. European nations and Ukraine are said to be drafting a 12-point plan to end the war along current battle lines.

US equities were little changed last night – S&P 500 (flat); Nasdaq (-0.2%). Netflix slumped postmarket after saying a tax dispute with Brazil dented earnings, marring otherwise in-line results.

In Asia this morning, equities were mixed: Nikkei 225 (flat); Hang Seng (-0.9%); Shanghai Composite (-0.1%). Japan’s exports rose for the first time in five months in September as shipments of chips and electronic parts gained. Japanese PM Sanae Takaichi ordered a fresh package of economic measures aimed at easing the burden of inflation on households and companies.

The FTSE 100 is currently 0.4% higher at 9,469, while Sterling trades at $1.3335 and €1.1495. Brent Crude trades at $62 a barrel, rebounding from near multi-year lows, supported by renewed supply-side risks. 

Source: Bloomberg

Company News

Reckitt Benckiser has today released its Q3 results which were better than market expectations, driven by strong growth in emerging markets. The group’s Fuel for Growth programme continues to deliver to plan and the share buyback programme is ongoing. Guidance for the full year has been reiterated, although the target for one of the group’s smaller divisions has been trimmed. In response to the update, the shares are little changed in early trading.

Reckitt is a global leader in health, hygiene, and nutrition. Trusted brands, such as Dettol and Lysol, continue to benefit from the shift to healthier and more hygienic lifestyles, particularly in emerging markets. To help ease the pressure on state-funded healthcare systems, we are seeing a transition to self-care and growth of over the counter (OTC) brands such as Mucinex, Nurofen, and Gaviscon, all of which are owned by Reckitt. A focus on immunity, mental health, and overall well-being is expected to drive growth of the group’s preventative treatments, such as vitamins, minerals, and supplements (VMS).

Reckitt is currently focusing its portfolio and simplifying its organisation to drive accelerated growth and value creation. A new operating model and structure went live at the start of 2025.

·       Core Reckitt (72% of revenue) includes a portfolio of 11 market-leading (No.1 or No.2), high margin Powerbrands across four categories of self-care, germ protection, household care, and intimate wellness. Brands include Mucinex, Strepsils, Gaviscon, Nurofen, Lysol, Dettol, Harpic, Finish, Vanish, Durex, and Veet. Over the last three years this portfolio has delivered a 5% net revenue CAGR and in 2024 generated a gross margin above 60%.

·       Essential Home (13% of revenue) includes a portfolio of non-core brands such as Air Wick, Mortein, Calgon, and Cillit Bang. The company has agreed to sell the unit in a fairly complex $4.8bn transaction – it includes up to $1.3bn of contingent and deferred consideration and Reckitt will retain 30% of the business. The transaction is expected to complete by the end of 2025. Excess capital will be returned to shareholders, with around $2.2bn expected to be paid out as a special dividend, which will be in addition to Reckitt’s ongoing share buyback programme (see below).

·       Mead Johnson Nutrition (15% of revenue). The company is ‘evaluating opportunities’ for the business which includes infant formula brands Enfamil and Nutramigen.

Reckitt operates across three geographies: North America, Europe, and Emerging Markets. It has also expanded and accelerated its existing fixed cost optimisation initiative to unlock efficiencies and deliver at least a three percentage points reduction in fixed costs by the end of 2027.

Overall, from 2026 the company believes it will have the portfolio, geographic footprint, and execution capabilities for Core Reckitt to consistently deliver 4%-5% like-for-like (LFL) net revenue growth, while consistently delivering annual EPS growth and creating value for shareholders.

Back to today’s results. In the third quarter of 2025, reported revenue rose by 4.5% to £3,611m. Stripping out the impact of currency (-2.4%) and M&A (-0.1%), LFL growth was 7.0%. Growth was better than the 6.4% expected by the market and reflects sequential volume improvements (+4.2%) and the strength of the group’s Powerbrands. Price/mix contributed 2.8%. Growth was led by Emerging Markets (+15.5%), while both Europe (+0.8%) and North America (+1.3%) returned to growth.

Core Reckitt grew by 6.7% to £2,603m, made up of 3.3% growth in price/mix and 3.4% volume growth. Growth accelerated versus H1, leaving the YTD growth of 5.0%, compared to the full-year target of ‘over 4%’. All of the group’s product segments enjoyed growth: Germ Protection (+9.2%), Intimate Wellness (+13.5%), Household Care (+0.2%), Self-Care (+5.6%). The company benefitted from recent innovations including across Self Care (Mucinex Rapid+Clear and Childrens medicated Mighty Chews) and Intimate Wellness (Durex Intensity, upgrades to Benzocaine condoms and lubricants portfolio in China).

In the smaller non-core divisions, Essential Home net revenue fell by 4.9% on a LFL basis to £479m, with volume growth of 0.6% more than offset by a price/mix decline of 5.5%. In Mead Johnson Nutrition, net revenue rose by 22% on a LFL basis to £529m, as the business lapped the significant impact of the July 2024 tornado. MJN volume rose by 12.4%, while price/mix was up 9.6%.

As expected at this stage, the group hasn’t provided an update on profitability or its financial position. At the end of the first half, financial gearing was 2.1x net debt to adjusted EBITDA, versus the guidance of ‘below 2x’. The dividend policy is to deliver sustainable growth in future years – the first-half 2025 payout was raised by 5%. A similar rate of growth at the full-year stage would generate a yield of 3.6%.

Reckitt is currently buying back its shares, with a £1bn programme to be completed by next summer. As of yesterday, the first £250m tranche has been completed. As highlighted above, this is in addition to the capital return associated with the Essential Home deal.

Guidance for LFL net revenue growth for 2025 has been maintained at 3%-4%, albeit made up of a slightly different mix:

·       Core Reckitt is still expected to grow above 4%.

·       Mead Johnson Nutrition is still expected to grow by low-to-mid single digits.

·       Essential Home (the business the company is selling) is now expected to decline in the mid-single digits, versus a low single-digit decline previously.

The Fuel for Growth programme is still expected to help drive adjusted operating profit ahead of net revenue growth. The group still expects to deliver another year of adjusted diluted EPS growth, albeit held back by a higher tax rate.

The company continues to monitor the evolving situation around global tariffs and the potential impacts on its supply chain and cost base. We note that Reckitt has five factories in the US and makes more than half of its US sales volume locally. The company also sources some over-the-counter products from Mexico and condoms from Southeast Asia. In the medium term, the company already has plans in place to increase its US production footprint – when its North Carolina factory comes online in 2027, the percentage of sales manufactured locally could rise to 75%. At present, the company sees an immaterial annualised impact on its COGS base which it is confident it can mitigate over the short to medium-term through several levers including pricing power and limited imports from China into the US.

The legal case against the company (and industry peer Abbott) relating to its cow’s milk-based infant formula is ongoing. Reckitt continues to vigorously defend these claims and believes the lawsuit’s claims are not supported by scientific evidence. However, the threat of sizeable damages continues to hang over the share price and prevents the company from offloading its Nutrition division.

Source: Bloomberg

Heineken has released its Q3 results which highlight a small decline in volume as macroeconomic volatility became more pronounced in the quarter. However, the decline was slightly better than the market’s worst fears. The company has downgraded its volume guidance for the full year and warned annual profits would be at the lower end of its forecast 4%-8% range. This downgrade has been anticipated and, ahead of this afternoon’s analysts’ meeting, the shares are trading up 2%.

Heineken is the world’s second largest brewer, generating net revenue of €30bn from a portfolio of iconic brands, many of which have been quenching the thirst of consumers for decades. In addition to the core Heineken brand, the company owns several well-known beers and ciders, including Sol, Tiger, Amstel, Murphy’s, and Strongbow, as well as 340 or so local brews. The company also owns around 2,400 pubs in the UK, runs a wholesaling operation in Europe, and has a strong global distribution capability. Over time, the group has expanded and developed its global footprint through investment in new breweries, partnerships, and acquisitions. It has also exited several businesses to refine the portfolio.

We believe the company is well placed to benefit from long-term growth opportunities in emerging markets (which generate 55% of revenue), where young and growing populations, low per-capita beer consumption, and increased wealth are expected to drive growth. The company believes the biggest opportunity is in India, with strong prospects in Mexico, Brazil, China, Vietnam, and South Africa.

The group generates more than 40% of its revenue from premium brands, where volume is growing faster than mainstream beer because consumers turn to better brands as they grow older and wealthier. Premium brands tend to have greater pricing power. Finally, the group is benefiting from the growth of low and no-alcohol products, where it is the global leader, and products ‘beyond beer’ such as seltzers and ready-to-drink products.

We believe the shareholding structure, supported by family ownership, ensures the company is run for the long term and in the best interests of all shareholders.

The group’s target growth algorithm is low single-digit volume growth, mid-single-digit revenue growth, and mid to high single-digit operating profit growth.

However, for now the global industry environment is challenging, with headwinds from the impact of weight-loss drugs on alcohol consumption and the request by the US Surgeon General for alcoholic drinks to carry warnings of their links to cancer. Other structural threats include Gen-Z moderation and cannabis cannibalisation, while political risk comes from the proposed US tariffs.

During the summer, investment bank Jefferies commissioned a survey of 3,600 US consumers to better understand their attitudes towards alcohol, finding that although moderation was becoming increasingly important, money was the biggest impediment rather than health concerns. This implies that the biggest consumption headwind is cyclical, not structural, and that a positive macroeconomic turn could be an inflection point. In addition, the industry has increased its lobbying to counter the message coming from health bodies.

At Heineken, volume remains below pre-covid levels. This a partly explained by the lack of a full recovery in the on-trade business (i.e. pubs, bars, and restaurants), especially in Europe where there are 10% less outlets. Heineken’s volumes have also been held back by the intentional removal of low quality, low margin business. Looking forward, the group is focused on generating a healthy balance between volume and price growth. We note that private label penetration is much lower in beer than in other consumer products.

In the third quarter of 2025, macroeconomic volatility persisted as anticipated and became more pronounced, creating a challenging environment, resulting in a mixed performance. The company expects consumer confidence and demand to recover when conditions normalise. Net revenue fell by 0.3% on an organic basis to €8.7bn, albeit better than the 0.8% decline expected by the market.

Total consolidated volume slipped by 3.8%, while the underlying price-mix was up 3.3%, led by pricing to mitigate inflationary pressures, and by a positive mix effect from portfolio premiumisation. Beer volume fell by 4.3% in organic terms, versus -1.2% in H1 and is now down 2.3% year to date.

The company enjoyed market share gains in a substantial majority of its markets. Volume growth was achieved in the Africa & Middle East region (+2.0%), offset by declines in Asia Pacific (-0.8%), Americas (-7.4%), and Europe (-4.7%).

The group continues to see an ongoing shift towards product premiumisation, although volume fell 2.2% organically. The Heineken brand itself fell by 0.6% in the quarter as double-digit growth in 21 markets did not offset contraction in Brazil and the US.

The group’s e-commerce platforms continued to grow, with gross merchandise value captured via B2B digital platforms up 13% to €9.7bn. The company is now connecting 730k active customers in fragmented, traditional channels.

The EverGreen strategy continues to generate benefits and leaves Heineken better placed to cope with ongoing macroeconomic volatility. The company is only part-way through its productivity improvements in Europe and there is much more to do in the digital space. The programme is still expected to deliver €0.5bn of savings in 2025.

Last week, the company announced the reshaping of its global head office as part of its new five-year strategy, EverGreen 2030. The move is part of a series of initiatives designed to create a more agile, simplified, and connected organisation. Further details of the strategy will be provided at Thursday’s Capital Markets Event.

As is usual at this stage, there is no update on the group’s profitability or financial position, although we would highlight Heineken has a strong balance sheet. At the end of June, financial gearing was 2.3x net debt to EBITDA, in line with the long-term target to be below 2.5x. The company has said it is beyond peak capex and has more to do in terms of working capital improvements.

The priority for capital allocation remains organic investment, the dividend, and bolt-on M&A. The dividend policy is to pay a ratio of 30%-40% of full-year net profit. Significant deleveraging has left the company well positioned to return additional capital to shareholders – a two-year €1.5bn share buyback programme is ongoing. The first tranche of €750m is expected to be completed no later than 30 January 2026, with €500m acquired up to and including 17 October 2025.

In September, the company acquired the multi-category beverage portfolio and retail business of FIFCO. The transaction builds on a long-standing partnership and will strengthen the company’s position across attractive Central American growth markets. This includes Costa Rica’s iconic century-old national beer Imperial and a major soft drink business with own brands and PepsiCo bottling licence – Costa Rica will become a top five operating company by profit. The group’s presence will also be expanded in beer and beyond beer in Panama, Nicaragua, and Guatemala. The cash consideration is $3.2bn or 11.6x 2024 EV/EBITDA. The deal is expected to generate run-rate cost savings of $50m through the application of Heineken best practice and will be immediately accretive to operating margin and EPS. The deal is expected to close in the first half of 2026 and will not impact the group’s financial gearing target or buyback programme.

Regarding tariffs, the company has previously highlighted that over 95% of its volume is locally produced. The main exception is the US into which the group imports from Mexico and The Netherlands. However, given the US accounts for less than 5% of group revenue, the impact of any tariffs won’t be material. The impact of tariffs on the local economy, particularly in Vietnam and Mexico, have been acknowledged but not quantified.

For the full year, the company now expects volumes to ‘decline modestly’, rather than remain broadly stable. Profit growth will still be supported by productivity gains of more than €500m. The company is now guiding to operating profit organic growth at the lower end of its 4%-8% target range.

Source: Bloomberg