Shares in PZ Cussons (PZC) cheapened 4.5% to 220.12p after the branded consumer goods group reported a 9% decline in first quarter revenue as its hygiene brands knocked up against tough comparators boosted by the ‘unprecedented demand’ seen at the start of the Covid pandemic.
Experiencing significant cost inflation, the Carex hand wash-to-Morning Fresh washing up liquid maker still expects to deliver adjusted profit before tax for the year to next May ‘within the current range of expectations’.
However, that assumes ‘no further cost headwinds or global supply or other Covid-related disruption’ and judging by today’s negative share price reaction, investors aren’t convinced PZ Cussons will meet those estimates.
TOUGH COMPS FOR CAREX
For the first quarter ended 28 August 2021, PZ Cussons’ year-on-year sales were down by 9%, entirely driven by the hygiene category, with Carex in the UK experiencing a double-digit decline.
Encouragingly, first quarter revenue was actually up 13% on the pre-pandemic period two years earlier, with growth generated across each of the company’s core categories of hygiene, baby and beauty and in all geographic regions.
Sales of the group’s ‘Must Win Brands’ - Carex, St. Tropez, Sanctuary Spa, Premier, Joy, Cussons Baby, Morning Fresh and Original Source - were up by 23%.
PZ Cussons returned to growth in August and net debt reduced further in the first quarter, due in part to the proceeds from the now disposed of five:am yoghurt business.
Results for the year to May, the first year of a new strategy devised by CEO Jonathan Myers, revealed a better-than-expected 11% rise in adjusted continuing pre-tax profits to £68.6 million on organic sales growth of 7%.
One of Shares’ key stock selections for 2021, PZ Cussons also declared a final dividend of 3.42p, upping the total dividend by 5% to 6.09p, reflecting the board’s confidence in the company’s ‘financial resilience and future growth prospects’.
Myers insisted: ‘The medium-term outlook remains in line with our expectations and we have confidence that our brand and market portfolio will emerge strongly once we cycle through the unprecedented demand for hygiene products at the start of the pandemic.’
He added: ‘We continue to navigate the well-publicised inflationary pressures on commodities and freight. We have a co-ordinated effort underway to reduce product, manufacturing and logistics costs that the consumer does not value while also accelerating our Revenue Growth Management plans to drive price/mix.’
THE EXPERT’S VIEW
Russ Mould, investment director at AJ Bell, commented: ‘A year ago, the consensus view was that Covid was so devastating to the world that it taught people the importance of washing their hands more often to reduce the spread of germs. Soap and hand gel sellers looked as if they would be sitting pretty for years ahead.
‘Reality has now hit home with a sharp fall in year-on-year sales for one of the UK’s best known hand gel products, Carex. To be fair, its owner PZ Cussons had a high hurdle to beat, given how the year-on-year comparative period saw an unprecedented surge in sales.
‘Furthermore, last year it barely had to do any cut-price promotions to shift products as demand went through the roof, implying that profit per bottle could be less this year if it reverts to historical discounting trends.
‘Fast forward to the start of its new financial year and there are pressures across the board, principally tough comparative figures to beat, significant cost inflation and ongoing disruptions to supply chains.’
