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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