Dettol-maker Reckitt Benckiser said Covid-19 has prompted consumers and companies to make lasting improvements in their cleaning routines, boosting prospects for future sales of its disinfectants and sanitisers.
Its sales of cleaning products and takeout food surged last quarter in the coronavirus pandemic, while the luxury industry such as the Louis Vuitton group suffered from shops being shut down and worries about the economic outlook curtailing consumer spending on high-end goods.
Reckitt's Lysol sales surged about 70% in the first half in North America, and professional demand has been so strong that the UK consumer-goods maker set up a business to meet demand from new clients including Hilton, Avis, and Delta.
A new era of cleanliness has begun, according to the company. Once a consumer adopts new behaviour such as consistent and thorough hand washing for more than two months, the habits stick.
“Covid-19 is likely to be with us for the foreseeable future and, as a society, we are embedding new hygiene practices to protect our way of life,” chief executive Laxman Narasimhan said.
Reckitt said it expects the boom in its cleaning brands, which also include Sagrotan handgel, will help ensure high-single-digit sales growth in 2020. The disinfectant maker is having its strongest start to the year in recent memory as shoppers stock up on disinfectants. The company also has been extending brands, adding products such as Lysol laundry sanitisers.
The shares were little changed after the company damped enthusiasm by saying margins will narrow in the second half due to investment. The company is spending £100m to boost production capacity as demand for products in May was equivalent to the full year 2019.
Reckitt shares have, however, risen 24% this year, outperforming all but six stocks in the Ffse100 index.
Chief financial officer Jeff Carr said such measures also include price cuts on several brands, a boost to marketing, and hiring more people in its research and regulatory teams.
Second-quarter sales rose 10.5%, more than the 6.8% gain analysts expected.
Not all of Reckitt’s businesses have benefited from the pandemic. One product that had weaker sales growth was Durex, as lockdowns inhibited dating and social interactions.
The company also said its cold-and-flu medication business may suffer this year as consumers become more vigilant against catching viruses in general. Most of the measures that the public can take to avoid the novel coronavirus also help prevent other viral illnesses.
European earnings are off to a “strong start,” Morgan Stanley strategists said in a report, with the breadth of companies beating estimates “very good” and suggesting that the consensus for the second quarter may be too low. As yet, however, analysts haven’t meaningfully increased their estimates, they said.
Meanwhile, luxury goods maker Louis Vuitton has fared less well.
LVMH’s first-half profit fell more than forecast, hit by customers pulling back on buying luxury goods at a faster pace than the Louis Vuitton owner can cut costs.
Organic revenue fell by 38% in the second quarter compared with a 29% decline in operating costs. Analysts called the results a “complex cocktail” of good and bad news and the shares fell.
LVMH’s customers are curbing purchases of high-end fashion faster than the company can cut costs, and that’s hitting the Louis Vuitton owner’s profit.
The French luxury conglomerate’s profit from recurring operations totaled 1.67 billion euros ($1.96 billion) in the first half, less than the 2.32 billion euros analysts expected. The shares fell as much as 4% early Tuesday in Paris.
With boutiques shut down worldwide and international tourism largely halted, revenue fell 38% on an organic basis in the three months through June, the company said. — Bloomberg