Reckitt Benckiser pushed up prices in the first quarter by more than 5 per cent to pass on higher ingredients costs, helping it to compensate for the reduction in disinfectant demand as Covid-19 restrictions ease.
The maker of Durex condoms, Dettol and Lysol disinfectants, and Nurofen painkillers increased prices by 5.3 per cent, boosting like-for-like net revenue growth to 5.6 per cent, far above the 1.5 per cent that analysts had forecast.
The price rises echoed those of competitors such as Unilever and Procter & Gamble, along with food groups such as Nestlé, which have also begun passing on steep rises in commodity costs to consumers.
Persil and Loctite maker Henkel said on Friday that this year’s rise in materials costs was unprecedented. It was expecting to pay about 25 per cent more this year for raw materials — twice as much as it expected in January.
Reckitt’s chief executive Laxman Narasimhan said: “As we look to the balance of the year, the operating environment remains highly unpredictable. We are well placed to address these market dynamics through the strength of our brands . . . and the responsible pricing initiatives already undertaken, with scope to take further actions.”
He added that the company was “working very hard to ensure we have price points in our range to meet various consumer needs”.
Reckitt’s sales increase was partly thanks to a boost to its US infant formula division from a recall by rival Abbott Laboratories after reports of bacterial infections. Reckitt said US baby formula sales had jumped 30 per cent as a result, boosting a division that is being sold, people familiar with the situation have said.
Narasimhan said commodity price inflation for Reckitt was now in the high teens. The Slough-based group said its operating margin was no longer expected to increase this year but would be in line with previous years “despite significant cost inflation”.
It said full-year sales growth would now be at the “upper end” of its 1 to 4 per cent projected range. Total net revenue was £3.4bn.
Demand for Lysol and Dettol disinfectants skyrocketed at the start of the pandemic, but that has abated as pandemic restrictions have eased and people have become aware that Covid is airborne.
A 30 per cent drop in Lysol sales helped push volumes of goods sold in Reckitt’s hygiene division down 12.8 per cent. Dettol net revenue also fell.
“We worry that those brands and categories will remain low growth for a long while as hygiene habits keep drifting away, negating the benefit from the expansion into new countries and categories,” said Bruno Monteyne, analyst at Bernstein.
Reckitt is now looking to sell the remainder of its baby formula business, whose brands include Enfamil, people familiar with the situation have said, after disposing of the Chinese arm last year and taking £8bn of writedowns. A sale would unwind the 2017 acquisition of Mead Johnson made under former chief executive Rakesh Kapoor.
Reckitt is also looking to offload its Russian business “to a third party or to our employees” following Moscow’s invasion of Ukraine.
Henkel’s chief executive Carsten Knobel warned on Friday that the rising price of raw materials was likely to mean €2bn of additional costs. He said Henkel would raise its prices and try to cut costs as countermeasures.
The company, which has annual sales of €20bn, lowered its guidance for operating profit margin to between 9 and 11 per cent of sales, compared with the previous range of 11.5 to 13.5 per cent.
Its decision to exit Russia and Belarus, where the company has 2,500 employees, will cost €1bn in annual revenue.
Its share price fell close to 8 per cent in morning trading on Friday in Frankfurt, its lowest in almost a decade.