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The Dettol and Lysol supplier continues to have a good crisis, though there are earnings headwinds ahead
Thursday 22 Oct 2020 Author: James Crux

Dettol, Lysol and Durex maker Reckitt Benckiser (RB.) is having its best year on the stock market in five years.

So far this year (to 20 Oct), its share price has risen by 17.4%. That is nearly twice as much as it achieved in 2016 (9.6%) and fast approaching the 20.6% achieved in 2015.

Helping to drive the share price has been yet another strong trading period with better-than-expected third quarter like-for-like sales growth driven by super-normal demand for its health and hygiene products during the pandemic.

Among a select band of companies to have continued paying its dividend during the crisis, Reckitt is investing heavily ‘in the relentless pursuit of a cleaner and healthier world’, although the business does face some headwinds going forward including temporarily declining birth rates which could impact its infant formula business.

Like-for-like sales grew by an impressive 13.3% in the third quarter amid bumper demand for global disinfection brands Dettol, Lysol, Sagrotan and Napisan. Chief executive Laxman Narasimhan now expects Reckitt to generate annual like-for-like growth in the ‘low double digits’ this year, upgraded from ‘high single digit’ growth previously.

Reckitt Benkiser has improved its supply chain and is saving significant sums through its productivity plan.

It has enjoyed exceptional demand for disinfectants in recent months, with existing and new customers clamouring for its trusted brands. Management expects ‘structurally higher levels of demand to persist longer term as new consumer cleaning and sanitation habits become engrained’.

Away from the home, there is growing consumer demand for hygiene products in public and shared places such as public transport, hotels, schools and offices.

Reckitt is now directly selling Dettol and Lysol in 19 new countries and is taking Dettol’s hand sanitiser and wipes into new international markets.

On the negative side of the ledger, social distancing may result in a weaker cold and flu season this year, impacting brands such as Mucinex.

Risk-averse investors should also note that restrictions on movement have impacted cross-border sales for infant formula between Hong Kong and China. Reckitt Benckiser also cited evidence that birth rates will be further lowered in coming quarters because of behaviour changes related to the pandemic, stirring up quite a headwind for its infant nutrition business in 2021.

Across the pond, one of Reckitt’s peers, Procter & Gamble also raised its earnings guidance as its latest quarterly sales grew by 9% with the pandemic powering sales of Procter’s cleaning and laundry products.

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