I always end "Mad Money" by saying that there's always a bull market somewhere, and it's my job to find it.
Tuesday morning, with the reporting of the numbers from British giant Reckitt Benckiser (RBGLY) and Cincinnati's Procter & Gamble (PG) , I have found a new one: the bull market in hygiene.
Sure, they both reported extraordinary numbers with RB and Procter giving 13% and 9% organic growth, respectively. For those of you new to these behemoths, those are smashing numbers. Some analysts were looking for half that growth.
But when you dig down, you see the bull market lurking: for Procter, you have fabric and home care rallying 14%, and health care 12%, RB cuts right through the bull and tells us that hygiene soared 19.5% and health soared 6%. You are most likely pretty familiar with Procter's hygiene products, such as Gain or Tide, Cascade, Joy and Mr. Clean, but you might be a big user of some of the RB hygiene line such as Lysol, up 70% year-over-year in all of its permutation, whether it be spray or wipes, all of which were being made around the clock to meet demand. You may not know Dettol, the overseas equivalent, which is doing fabulously.
Now, when you find a new bull market, you have to be sure it has staying power through thick and thin. That's something that was taken on directly by both the chief financial officer of Procter & Gamble, Jon Moeller, who runs the call, and CEO Laxman Narasimhan for Reckitt.
"We do expect that there's some stickiness to new habits that are being formed," Moeller said about the hygiene obsession. "It's hard for us to see in our interactions with consumers that we're going to snap back and revert to the same attitudes and the same behaviors" that we collectively had pre-Covid.
Moeller then talked about how our grandparents, who survived the depression, often hoarded more food than we would. "Consumer habits," Moeller continued, "once they're established in our categories, are rarely reversed."
Hygiene's a habit that's not going away.
Laxman Narasimhan told me that the hygiene trend is the most powerful theme in all of consumer packaged goods right now. They are producing five times the amount of their hygiene products they made last year. I think it's pretty clear that the cost of that expansion was huge, but is now largely behind it, which means there could be some terrific margin expansion ahead. His comments on the call were on point: "Most importantly, the pandemic has heightened the social importance of hygiene, seen increasingly as a foundation for health by all. We're seeing that 86% of consumers are reporting that their hygiene practices have improved over the course of this period."
Jeff Carr, the firm's CFO, says that the belief is that "a vaccine or a quick reversal of the pandemic" is not going to change that view.
Now, sometimes I don't want to overthink it: soap, detergent, and disinfectant are all hygienic, which means that you can easily extrapolate them to companies like Colgate (CL) , Clorox (CLX) and, to a lesser extent, Church & Dwight (CHD) , which owns Arm & Hammer. We owned Colgate for Action Alerts PLUS and sold it for a small profit, but after listening to this call, I said its soap and disinfectant lineup's very powerful and on an election/stimulus defeat decline, maybe we should buy it back. Just mulling. Clorox seems a bit played out and Church & Dwight has a lot of other moving parts.
But let me posit another idea: L Brands (LB) . Here's a company with a dominant division, Victoria's Secret, which his faltering badly, but its Bath & Body Works, at $5.1 billion in sales, about half of the company's revenues, may be a hidden gem, something so far that only JPMorgan analyst Matt Boss has been pushing. He says there is 50% upside because of it. I say that the hygiene bull market takes many forms, but soap stands out and that puts Bath and Body Works into the raging bull category.
Hygiene. It's here. It's not going away. And what a great place to be regardless of who wins for president.
