Shares in consumer goods colossus Reckitt Benckiser (RB) rose 4% to £66.54 on Thursday after it reported record quarterly sales growth. Customers have been stocking up on its Lysol and Dettol disinfectants, as well as the Mucinex cough treatment and Nurofen painkiller brands, during the coronavirus lockdown.
Demonstrating not all companies are suffering equally during the pandemic, Reckitt Benckiser now expects its performance in 2020 will be better than originally expected, albeit ‘the outlook for the balance of 2020 remains uncertain’ given ‘significant COVID-19 challenges’ across its markets.
FIRST QUARTER BEAT
First quarter like-for-like sales rose 13.3%, smashing analysts’ estimates of 5.3% provided by the company and driven by strong demand for health and hygiene brands including Dettol and Lysol, which break the chain of COVID-19 infection, as well as Mucinex, Nurofen and VMS.
Sustaining supply despite challenging conditions in many markets, this growth marked the best sales increase seen at the company since its 1999 formation through the merger of Reckitt & Colman and Dutch firm Benckiser NV.
EXCEPTIONAL DEMAND
In its hygiene business, Reckitt Benckiser chalked up like-for-like growth of 12.8%, with strong growth in most markets, including double-digit growth in North America, Europe/ANZ and Latin America, while over in health, like-for-like growth amounted to an impressive 13.6%, with a boost from strong demand for Dettol.
Online revenue rocketed over 50% higher in the quarter amid strong growth in both hygiene and health and led by growth from North American consumers switching to online channels, especially in March as ‘stay at home’ took hold.
MEDIUM TERM OUTLOOK UNCHANGED
In February, new CEO Laxman Narasimhan set out his strategy for rejuvenating sustainable growth at Reckitt Benckiser.
Today, the former Pepsi man assured that the medium term outlook for sustained mid-single digit organic revenue growth and mid 20’s margin by 2025 remains unchanged.
‘We have seen strong consumer demand, particularly in March and April but the split between defensive buying and higher levels of underlying consumption is unclear,’ explained Narasimhan.
‘At this stage, it is uncertain how quickly this will change in the months ahead. Improved penetration and usage, particularly for products like Dettol and Lysol, may well sustain, although we will likely see some unwinding of “pantry load” as we work our way through the crisis. The near-term operational challenges to meet additional demand and handle lockdown conditions, with the associated costs, are also likely to continue for some time.’
Russ Mould, investment director at AJ Bell, remarked that Reckitt Benckiser is ‘doing its bit in the effort to tackle the pandemic by putting 1% of profit into a support fund, thereby ticking the good corporate citizen box.’
He added: ‘Although sales were lifted by stockpiling as the crisis took hold, it seems likely that some of the changes to consumer behaviour in the wake of the pandemic will be lasting. This could provide some extra pep to the recovery plan being delivered by Narasimhan.’
