Reckitt lifts sales view as coronavirus spurs demand for Dettol, Lysol

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LONDON (Oct 20): Reckitt Benckiser reported a much bigger-than-expected rise in third-quarter sales on Tuesday and raised its full-year outlook, as the coronavirus pandemic lifts demand for cleaning products such as Dettol and Lysol.

The British company also said it may achieve its plan to rejuvenate sales following years of difficulties earlier than expected.

"While there is still more work to do, I'm pleased to say that RB today is in much better shape than it was a year ago," Chief Executive Laxman Narasimhan, who has been in the role for a year, told reporters.

He is banking on longer-term elevated use of soap and disinfectants beyond the pandemic, as well as the roll-out of products into new countries and areas, such as on public transport and in hotels.

Reckitt shares were up nearly 2% at 0954 GMT. They had fallen 8% over the past three months to trade at 23 times expected 2021 earnings, a discount to European peers, according to JP Morgan Cazenove analysts.

The company said quarterly sales on a like-for-like basis rose 13.3%. Analysts on average expected a 9.5% increase, according to a company-provided consensus.

For the full year, Reckitt now sees a low double-digit rise in like-for-like growth, up from a prior forecast of high single-digit growth. It may be able to meet its medium-term target for mid-single-digit growth a year early. Last year's growth was just 0.8%.

Third-quarter like-for-like sales rose 19.5% in the hygiene business, 12.6% in its health business, and 4.1% in its nutrition business.

While relieving overall pressure on a company that has faced intense competition for several years, the Covid-19 pandemic is hurting sales in some areas.

Social distancing has pressured Durex condoms, while the company said reduced birth rates this year and next should weigh on its baby formula, which includes Enfamil. Social distancing is also likely to result in a weak flu season, which will impact cold remedies like Mucinex, it said.

Despite the strong numbers, Bernstein analysts were cautious about the medium term, due to "below-average growth prospects beyond a Covid world ... and the brand-equity pressure implied in having a new margin target".

Reckitt is preparing to sell some of its personal care brands, including Veet hair removal cream and Clearasil acne cream, Reuters reported last month.

Analysts also wonder if Reckitt might eventually sell its baby formula business, which has struggled since it was acquired in 2017. When asked about further sector consolidation, CEO Narasimhan said: "This is an industry we're watching closely ... but we have nothing new to share".