Consumer goods companies enjoyed a strong week, but what makes them so special?
Reckitt Benckiser Group PLC (LSE:RKT, ETR:3RB), Unilever PLC (LSE:ULVR) and Haleon PLC (LSE:HLN, NYSE:HLN) are the consumer goods FTSE 100 companies which all posted an impressive set of results and raised guidance for the year.
Decent sales of household names like Dove, Bovril, Sensodyne and Veet perhaps shouldn’t seem quite so unexpected or exciting, but, given the burning spotlight on inflation and the so-called ‘cost-of-living crisis', such outcomes have seemed less than obvious to investors in recent weeks.
Likely the key piece of reassuring information for shareholders is the fact that both Reckitt and Unilever appear able to successfully pass on rising input costs to consumers, without scorching too much earth.
Reckitt upped its revenue growth guidance to 5%-8%, up from 1%-4%, while Unilever now expects sales growth ahead of 6.5%, which was at the top end of previous guidance.
Haleon, GSK’s consumer healthcare spin-out which debuted last week, meanwhile, expects the top line to grow by between 6% to 8%, an increase in the range of 2%.
Well positioned
Consumer staples firms like Reckitt and Unilever look well positioned to navigate the unfavourable macro environment, that’s according to Victoria Scholar, head of investment at interactive investor.
Julie Palmer, a partner at corporate restructuring firm Begbies Traynor (AIM:BEG) similarly highlights that there’s a lot of trust in these brands, which provides some protection, particularly for baby products where new parents would often go with the household name rather than look to penny pinch.
Palmer reckons that trust and brand loyalty is key for consumer goods, particularly in times of economic downturn.
It’s pointless having a diversified portfolio if the products aren’t trusted, she added.
Benefitting from tough times?
Palmer says London’s blue-chip consumer goods companies have found some advantage as supply chain problems have been more disruptive for some competitors.
“You can probably add into the equation potential supply chain issues that have caused a shortage of supply,” she said.
“When that's the case in the backdrop, it's much easier to pass high prices, where the marketplace and people have got limited choice.”
Inflation remains the worry though
Reckitt, Unilever and Haleon all warned about input inflation this week.
For the time being, they have been able to navigate through the problem, with rising costs so far not impacting volumes significantly.
“The concern for Reckitt will be that squeezed consumers will realise they don’t need to pay a few pounds for a box of Nurofen when they can buy unbranded ibuprofen for a fraction of the cost. Or that supermarket-own bleach can do much the same job of cleaning a toilet as Dettol can,” said AJ Bell’s Russ Mould.
Palmer, however, believes it will depend on how bad the situation gets for the consumer.
Whilst the outlook is not yet spoiled for London’s consumer powerhouses we’ve yet to see any light or the end of any tunnel in cost-of-living crisis.
Investors will continue to watch cautiously, and, hope that these behemoths can keep their pricing strategy in-check otherwise diversified portfolios and strong brand loyalty brands won’t amount to much.