Shares in consumer goods giant Reckitt Benckiser (RB.) rose 2.4% to £73.80 on Tuesday after the Dettol-to-Durex maker upgraded annual sales guidance after generating a forecast-beating surge in third quarter like-for-like sales.
Slough-headquartered Reckitt’s revenues have been buoyed by higher demand for its trusted health and hygiene products during the Covid-19 pandemic.
Furthermore, management’s plan to invest more than £2 billion over three years ‘in the relentless pursuit of a cleaner and healthier world’ remains on track, supported by an expanded productivity drive that has delivered savings of £300 million so far this year.
The positive momentum seen in the first half continued into the third quarter to September at Reckitt, with like-for-like sales growing by an impressive 13.3% amid bumper demand for its global disinfection brands Dettol, Lysol, Sagrotan and Napisan.
For 2020 as a whole, Reckitt now expects to generate like-for-like growth in the ‘low double digits’. That represents a significant upgrade on previous guidance for ‘high single digit’ growth.
On a reported basis, sales growth was strongest in the hygiene products division, rising 12.4%, while sales in the health division rose 6.9%, although reported sales in the nutrition division actually fell 1.8%.
‘Our performance has been led by an increase in Hygiene and Health volumes, led by our market-leading disinfectant brands - Dettol, Lysol, Sagrotan and Napisan,’ enthused charismatic chief executive Laxman Narasimhan.
He pointed out growth has been underpinned by better customer service levels, an improved supply chain performance, together with strong momentum in Reckitt’s e-commerce operations.
The coronavirus pandemic has heightened the societal importance of hygiene, while elsewhere within the brand portfolio, Finish and Air Wick have benefited from consumers spending more time at home. Unfortunately, restrictions on movement have impacted cross-border sales for infant formula between Hong Kong and China.
Reckitt Benckiser also flagged up evidence that birth rates will be further lowered in coming quarters as a result of behaviour changes related to the pandemic, impacting on market growth for its infant nutrition business in 2021.
‘While the revenue performance in nutrition improved in the quarter, we remain fully focused on addressing the headwinds, such as Hong Kong, and taking the actions necessary to deliver a sustained improvement,’ stressed Narasimhan.
IN RUDE HEALTH
The Reckitt Benckiser boss also explained his charge is ‘reinvesting our outperformance to capitalise on the strong demand for our products, particularly with Dettol and Lysol and through eCommerce and professional channels’.
Seeking to deliver ‘mid-single digit revenue growth in the medium term and mid-20s margins by the mid 2020s’, he insisted improved execution and investments in capability and growth will ‘enable us to achieve our revenue growth target a year earlier than expected, and with greater certainty.’
Russ Mould, investment director at AJ Bell, said Reckitt Benckiser is delivering ‘the level of growth you’d normally associate with a relatively young business that is grabbing market share and seeing strong momentum for its products and services.’
Mould believes ‘there are plenty of points in its latest trading update that reinforce Reckitt’s credentials as a strong business. Improvements to its supply chain will make sure products are available when needed. It is also saving money from its productivity plan, which is also running ahead of schedule.
‘In a nutshell, we’ve got a leaner, more efficient business selling into a market with major tailwinds – what a position to be in.’