By Siddharth Cavale
(Reuters) – Reckitt Benckiser <RB.L> achieved record sales growth in the first quarter and predicted a stronger-than-expected performance in 2020 as customers stocked up on Lysol disinfectants, Mucinex cough syrup and Dettol soap ahead of the coronavirus lockdowns.
The boom in demand has come as the company had been battling intense competition in the health and hygiene industry. In February, Reckitt had announced plans to spend 2 billion pounds over the next three years to spur growth.
Reckitt said its business was more resilient now than a few months ago and it was adjusting quickly to a world where personal hygiene was becoming more important.
Laxman Narasimhan, who joined as CEO in September, said that he expected more pronounced changes in consumer behaviour the longer people are forced to sit at home. He said that higher e-commerce usage and a preference for more well-known brands were some of the changes in behaviour he expected to stick after the pandemic subsides.
“I do not expect that 2022 or 2023 is going to look similar to what 2019 looked,” Narasimhan said on a post-earnings call with reporters and analysts, adding that the company was responding to these changes by pouring more money into developing its online business and introducing more products and quantities of its popular hygiene brands such as Lysol and Dettol.
His comments mirrored those of his counterparts at Unilever <ULVR.L> and Procter & Gamble, which have also been releasing new products and ramping up production of cleaning supplies as they see unprecedented demand.
Still, Reckitt’s first quarter performance surpassed its peers, reporting a 13.3% rise in first quarter like-for-like sales, that was its best performance since the company was formed in 1999.
Reckitt’s shares, up 5% so far this year, were up 4.8% in morning trading.
“A blowout first quarter even better than expected with pantry loading and increasing usage in many of RB’s categories,” Jefferies analyst Martin Deboo said adding that the key question now was what impact consumers’ destocking of hoarded items would have on Reckitt’s performance in the second quarter.
Reckitt’s net revenue rose 12.3% to 3.54 billion pounds in the three months ended March, beating analysts’ average estimate of 3.29 billion pounds.
Narasimhan said demand could ease over the next few months as consumers work through soap and disinfectant stock in their cupboards.
Still, the Slough-based company said its 2020 performance would be better than its forecast, which called for steady progress towards mid-single-digit sales growth and adjusted operating margin declines of about 350 basis points.
In response to an analyst question on why margin guidance was being maintained despite easing pressures of commodity prices such as oil, Narasimhan said that it was because the savings were being offset by additional spending on implementing social-distancing measures and ramping up capacities.
Last week, Reckitt warned people against using disinfectants to treat the coronavirus, after U.S. President Donald Trump appeared to suggest researchers try putting disinfectants into patients’ bodies.
“We hope no-one’s injecting RB’s products, but the public are most certainly buying them in huge quantities,” Emilie Stevens, equity analyst at Hargreaves Lansdown, said.
(Reporting by Siddharth Cavale in Bangalore; Editing by Sriraj Kalluvila, Saumyadeb Chakrabarty, Jane Merriman and Alex Richardson)