Reckitt Says Heavy Ad Spending 'Paid Off in Spades'

Sales, Profit Soar in First Quarter Behind Increased Marketing Outlay

By Published on .

BATAVIA, Ohio ( -- If there's a recession, somebody forgot to tell Reckitt Benckiser.

Despite a seemingly steep slowdown in the U.S. that cut deeply into top-line growth of fellow European package-goods player L'Oreal last quarter, Reckitt today reported global first-quarter organic sales growth of 11% to $3 billion, with like-for-like sales of its North America and Australia region up 10%. Earnings per share soared 27%, 19% organically.

'Substantial investment'
In a conference call with analysts today, Reckitt CEO Bart Becht credited heavy marketing spending, which had come under scrutiny by analysts last quarter, for much of the strength. "Clearly one of the biggest [factors] is the substantial investment we made in Q4 in the business," Mr. Becht said. "That has paid off in spades in the first quarter in terms of growth on our power brands behind our innovations. In the first quarter, we also have had very strong investment behind the franchises."

Reckitt looks to continue higher levels of spending through the balance of 2008, though not at the same levels seen the past two quarters, Mr. Becht said.

Results for the marketer of brands such as Lysol, Airwick, Clearasil and recently acquired Mucinex were strong enough that Reckitt raised its guidance for sales growth, excluding acquisition and currency impacts, to 7%-8% for the year from the prior 6%-7% target.

Reckitt exceeded his forecast on nearly every front except margins, said Sanford C. Bernstein analyst Andrew Wood, noting that the margins were affected by the advertising and promotion spending, particularly in home care.

L'Oreal disappoints
By contrast, L'Oreal earlier this month reported top-line organic growth of 5%, which disappointed many analysts. L'Oreal's numbers were dragged down by a decline in North American sales of nearly 4%, which in turn was among factors leading Deutsche Bank analyst William Schmitz to downgrade industry heavyweight Procter & Gamble Co. from buy to hold.

With P&G and rival Unilever yet to report, it remains to be seen how well all household and personal-care companies are holding up under a weakening U.S. economy. Johnson & Johnson's personal-care numbers were mixed, with U.S. sales remaining strong in skin care but declining sales in oral and feminine care. Kimberly-Clark Corp. came in earlier this week with a fairly strong first-quarter organic sales growth of 5%, following a 6% rise last quarter.

Reckitt's numbers today led Mr. Wood to conclude, "Europe and North America have been more resilient than we had originally expected."

One wild card is the extent to which marketers had their sales boosted last quarter by retailers buying in advance of price hikes taking effect this quarter. L'Oreal, whose CEO Jean Paul Agon noted issues of retailer de-stocking this quarter, may have seen the downside of such advance sales this month, said one analyst.
Most Popular
In this article: