Better-Than-Expected Sales Boost Reckitt Benckiser

By Saabira Chaudhuri

Selling more products at higher prices helped the maker of Durex condoms report strong sales growth on Friday.

Shares in Reckitt Benckiser Group PLC (RB.LN) were trading up 8.2% on Friday afternoon after it reported better-than-expected sales, helped by higher prices, strong volumes and growth in infant nutrition.

Raising prices to boost growth has become a challenge for the consumer-goods industry in the face of weak inflation, Amazon.com Inc.'s (AMZN) rising prowess in selling household staples and a decline in brand loyalty as consumers shop around online. The growing popularity of discount retailers is further pushing prices down.

But Reckitt said it was able to raise prices in its health arm, which houses brands such as Durex condoms, Strepsils lozenges and Nurofen painkillers, and reported a 3% rise in like-for-like sales.

"By and large we're a volume and price-driven company," said Chief Executive Rakesh Kapoor.

In the second quarter, results were buoyed by a new KY-duration gel, a Strepsils spray for sore throats and new Nurofen medicated plasters. Those innovations helped the company boost prices by 1% overall in the last quarter and contributed to a 4% rise in comparable sales in the period. That beat analysts' forecast of a 2.9% rise.

However, Reckitt's home and hygiene arm, which sells more pedestrian products such as cleaners and detergents, logged negative pricing, with like-for-like growth of 4% driven entirely by a 5% rise in volumes. That is in line with trends seen at rivals.

Colgate-Palmolive Co. (CL) on Friday reported flat global pricing for the second quarter while reporting weaker-than-expected sales. Unilever PLC (UL), which makes Dove soap and Vaseline, last week reported underlying sales growth of 2.5%, driven almost entirely by volume rather than price for the first half of the year. Huggies diapers maker Kimberly-Clark Corp. (KMB) on Monday reported that prices fell 1% in the second quarter while organic sales were flat.

Overall, Reckitt, based in Slough, England, said profit for the first half rose to GBP1.11 billion ($1.46 billion) from GBP1.02 billion for the year-earlier period. Revenue climbed to GBP6.14 billion from a restated figure of GBP4.98 billion for a year ago.

The results are a welcome relief for a company that was a stock-market darling until 2016, but has since been challenged by a far-reaching cyber attack, a humidifier disinfectant that has been blamed for dozens of deaths in South Korea and the failed launch of a Scholl-branded foot file.

Reckitt last year bought Mead Johnson for $16.6 billion, almost doubling the size of its consumer-health business and pushing it deeper into emerging markets.

On Friday, the company said a boom in births in China following the lifting of its one-child policy in 2016 has helped the infant formula business there, although it doesn't expect this to continue as growth has since slowed.

"Overall this was a very good reporting, like the RB of old," said Bernstein analyst Andrew Wood, adding that he was "most pleased" with an improvement in profit margins after adjusting for the Mead Johnson acquisition.

In the second half of the year, Reckitt said it would launch a "new warming variant" of its thinnest condom and an "endurance-enhancing" gel for men "that helps prolong and enjoy intimacy for longer."

Condom use is still relatively low even in big developed markets. A report last year from the CDC examining data from 2011 to 2015 showed that just 14.8% of women aged 15 to 44 years who had sex in the past year used a condom with their partner every time over this period. That's down from 15.9% between 2006 and 2010. The percentage of women who said they never used a condom ticked up to 59.9% from 57.6%.

Mr. Kapoor said Reckitt is working with governments in both emerging and developed markets to educate people about how condoms can help prevent unwanted pregnancies and protect against disease. Despite tepid demand, he said Reckitt's innovations on Durex have given it a long runway for growth to raise prices.

"In my opinion a beautiful sexual experience should be 100 pounds," he said. "Durex condoms in my opinion are really very cheap."

--Dimitrios Kontos contributed to this story

Write to Saabira Chaudhuri at [e-mail]

(END) Dow Jones Newswires

July 27, 2018 09:02 ET (13:02 GMT)

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