Lysol Sales Boom Is Part Luck, Part Elbow Grease
October 20 2020 - 9:22AM
Dow Jones News
By Carol Ryan
Reckitt Benckiser's chief executive may be one of the luckiest
bosses around. But a pandemic-led spike in demand for cleaning
products like Dettol and Lysol isn't the only explanation for the
packaged-goods company's polished performance this year.
On Tuesday, London-listed Reckitt said comparable sales in the
three months through September increased by 13.3% year over year at
constant exchange rates, as U.S. consumers in particular continued
to snap up its products. The company increased its full-year
guidance for sales, although not for profit margins. The boom means
that Reckitt will hit its medium-term revenue target set back in
February one year ahead of schedule.
Laxman Narasimhan, a former PepsiCo executive who took over the
running of Reckitt in 2019, inherited a business struggling with
rickety supply chains and underinvestment. But a portfolio of
health and hygiene brands turned out to be tailor-made for a global
pandemic. Reckitt's factories cannot keep up with demand for
disinfectant products like Lysol. The company has had to work with
third-party manufacturers to double production capacity compared
with this time last year.
Some parts of the portfolio remain unimpressive. Sales at
Reckitt's baby-food business, which took a $6.5 billion write-down
earlier this year, were flat in the quarter. Covid-19 will slow
birthrates in important baby-food markets like the U.S., as worries
about job security cause couples to delay starting a family. The
rate was declining in China even before the pandemic. Ironically,
this year's winter flu season will be weak due to social
distancing, hitting sales of cold medicine like Nurofen
painkillers.
Yet there was plenty of good news, and not just on sales.
Reckitt's supply chains are improving, leading to better
availability of its products on shelves. The company is investing
in e-commerce, which has generated 12% of group sales so far this
year -- about the same level as larger peer Nestlé. And
partnerships with Airbnb and Major League Baseball point to the
potential for new revenue streams. Reckitt will work with companies
to improve hygiene standards, with a halo effect for its brands.
When someone checks into a Hilton hotel, for example, there will be
a Lysol seal on the door.
Investors, who are handing over 23 times next year's earnings to
own the stock, have already paid in full for the cleanup. The
company's shares are now only slightly cheaper than those of
Nestlé, a company already three years into its own turnaround plan.
Still, there are early signs that Reckitt's strong sales should
continue to benefit from sharper operations as well as helpful
trends.
Write to Carol Ryan at carol.ryan@wsj.com
(END) Dow Jones Newswires
October 20, 2020 09:07 ET (13:07 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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