[Reckitt Benckiser (RB)] is a leading global consumer products company with $15 billion of sales in 2017 and strong brands in health, infant nutrition, home care and hygiene. RB has successfully expanded its presence in high-value health products categories and increased its operating profitability via premiumization and excellent cost discipline. RB’s historical best-in-class performance can in part be attributed to its significant insider ownership: the CEO and CFO are required to own shares worth more than 40 times and 20 times their salaries, respectively. RB’s share price recently declined due to transitory factors as well as weakness in its relatively small home care division. Management is restructuring the home care division to provide greater accountability and may sell the division to an owner who can extract greater operational synergies. Moreover, many of the transitory factors affecting the share price are expected to disappear in fiscal year 2019. Therefore, in our view, the current share price does not reflect the company’s strong underlying value or its potential for increased profits, so we initiated a position in RB during the past quarter.
From David Herro (Trades, Portfolio)'s Oakmark Global Fund second quarter 2018 shareholder letter.
