Lysol maker confronts inflation, slowing disinfectant sales amid pandemic recovery
Reckitt on Tuesday reported a 1% fall in overall like-for-like sales and warned it expects third-quarter sales growth to be lower than last year
The maker of Lysol has ridden a wave demand for its cleaning products since Covid-19 hit. Now Reckitt Benckiser Group RBGLY -7.88% PLC is grappling with a pandemic-recovery double whammy: slowing sales of disinfectants and rising cost inflation.
Reckitt posted record sales last year, boosted by demand for its products like Dettol soap and wipes that strained its ability to keep stores stocked. But with Covid-19 vaccines being rolled out across the world and restrictions easing, the company says those trends have started to moderate in recent months.
"We are seeing shifts in behavior," Chief Executive Laxman Narasimhan said of demand for hygiene products. "What we did see in Q2, in the U.S. in particular, was a tail off that was higher than we thought."
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Reckitt on Tuesday reported a 1% fall in overall like-for-like sales and warned it expects third-quarter sales growth to be lower than last year. Shares dropped as much as 9% in London.
As well as slowing growth, the company like others in the consumer-goods industry is also contending with rising prices of things like plastics and paper, and higher freight costs. Reckitt said its operating profit margin for the first six months of the year fell 2.9 percentage points to 21.6%.
Reckitt said it was expecting inflation of 8-9% on cost of goods over the full year, a level that it wouldn’t be able to address through raising prices in the short term. It did say, though, that it has already raised prices of its infant and child nutrition products in places such as the U.S., Latin America and China, and that it was also working to increase the price of its hygiene products this year.
"Cost inflation accelerated in the second quarter and it will take time to offset this headwind," Mr. Narasimhan said. Reckitt lowered its margin guidance for the full year, making a similar move to consumer-goods giant Unilever PLC last week.
Lysol and Dettol together make up a quarter of Reckitt’s revenue. Mr. Narasimhan said demand for the company’s cleaning products remained comfortably above pre-pandemic levels, but that sales growth for Lysol slowed and sales of Dettol declined in the second quarter.
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For the same period last year, comparable sales in Reckitt’s hygiene arm rose almost 20%, driven by a jump in demand for Lysol products in North America. This year, however, the division grew a more modest 7.8% in the quarter. Mr. Narasimhan said sales of its hygiene products had dropped more than a third in the U.S. since early March.
To try to sustain some of the momentum from the pandemic, Reckitt is rolling out its products in more countries and has set up a new unit selling its cleaning products and expertise to businesses in industries like travel and hospitality.
Other parts of the company’s portfolio have benefited from eased restrictions, however. Sales of Mucinex, Lemsip and Strepsils have all shown signs of life up after large falls last year because of a historically weak flu season. Brands such as Durex condoms and Nurofen painkillers have also returned to growth as the world gets back to socializing.
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Overall, the company reported a 4.5% fall in first-half revenue to 6.6 billion pounds, equivalent to $9.01 billion, partly hurt by adverse currency changes. It posted a net loss of £1.73 billion for the six-month period as it took a loss related to the sale of its infant formula and child-nutrition business in China. That compares with a profit of £1.08 billion in the year-earlier period.