Sales of hand sanitizers, cleansers and face masks in the midst of the H1N1 flu pandemic may provide a profit boost this quarter, but are not expected to drive manufacturers' results long-term.
Clorox Co , Ecolab Inc and others have been in the spotlight since H1N1, or swine flu, was identified in the United States in April. With the flu season now in full swing, sales of their products have grown brisk.
Face masks and sanitizers have been used regularly in Asia since the outbreaks of SARS and Avian flu earlier this decade. In Japan and other countries, it is common to see people wearing masks if they have a cold.
In the United States, such practices are still rare but have become more common this year. Some travelers began donning face masks, flu shots have become more popular and hand sanitizing stations are popping up in office lobbies and other public spaces.
None of the companies are saying yet that they're going to see a lot of benefit, but I'd argue that when you get into this quarter ... it will be one of the drivers of some of these people's numbers, said Sanford Bernstein analyst Ali Dibadj, who follows household products manufacturers.
If swine flu stays with us or the flu seasons broadly get worse, then this could be a longer-term benefit, but given what we know so far it seems like it's more of a short-term improvement, Dibadj said.
Among household products makers, Clorox and Kimberly-Clark Corp are seen as the biggest revenue beneficiaries. Margins could also improve if companies start running at fuller capacity to meet increased demand, Dibadj said.
At Clorox, the U.S. home and laundry business, which includes bleach and wipes, accounts for about 30 percent of sales.
Dibadj said Clorox could see a profit increase of up to 2 to 3 percent from swine flu if it gets pretty bad.
For Kimberly-Clark, healthcare items such as face masks are a small part of the total business. If sales of those items rose 10 percent, the company could see about 0.5 percent of profit lift, Dibadj estimated.
GROWTH ALREADY BEGAN
If the recent past is any indicator, manufacturers should see a lift this quarter, even as other parts of their businesses may still suffer amid the downturn.
One bright spot in Kimberly-Clark's second quarter was healthcare. Volume in that unit rose about 15 percent, driven by face masks. Overall company volume fell 2 percent.
3M Co said strong demand for its respiratory masks in the second quarter helped offset sales declines in its industrial segment. Such growth has continued.
We have seen a significant increase in demand and we have increased our production, a 3M spokeswoman said.
The company, which also makes hand sanitizer, has been manufacturing face masks nonstop for a few months now.
Ecolab has seen a significant increase in orders for hand sanitizers in the third quarter and we expect that that will probably remain strong through the flu season, spokesman Michael Monahan said.
Ecolab has increased production three to five times for sanitizers such as Endure.
Chairman and CEO Douglas Baker, speaking during a July conference call, said a couple of million dollars in increased sales in its healthcare unit were thought to be tied to H1N1.
Still, less than 5 percent of revenue at the $6 billion company comes from products like hand sanitizers.
In the scheme of things it's immaterial to the bigger issues going on at companies, such as total revenue, foreign exchange fluctuations and commodity costs, said RBC Capital Markets analyst Jason Gere, who does not follow Ecolab. I think it will help but I don't think it will be all that material.
At Clorox, shipments of disinfecting wipes and bleach climbed in the fiscal fourth quarter, which ended in June.
It's a little bit more unclear about how consumers will respond this fall and winter, but we're definitely working with retail customers to ensure there is enough product, said Benno Dorer, senior vice president and general manager of Clorox's cleaning division.
Dorer declined to say if Clorox has taken steps such as shifting more plants to nonstop runs, or moving more production toward products in demand, such as bleach and wipes.
Johnson & Johnson did not discuss whether it saw a flu-related sales lift for Purell hand sanitizer in its third-quarter report. A spokesman declined to comment.
Others, however, have noted an increase. Alpha Pro Tech Ltd , which has ramped up mask production, said mask sales would rise significantly in its third quarter, ended in September, and come in well ahead of the second quarter.
(Reporting by Jessica Wohl, additional reporting by Jonathan Lynn in Geneva and Anuradha Ramanathan in Bangalore, editing by Matthew Lewis)