Givaudan, a Swiss fragrance and flavor maker, predicts that the demand for soap, shampoo, and snacks will see a significant increase in April due to the ongoing coronavirus pandemic. This surge in demand is evident from the company’s like-for-like sales, which rose by 5.4% in the first quarter. The rise in sales indicates that consumers are stockpiling essential items during this crisis. While Givaudan’s businesses in food and drink flavors and fragrances for household products like washing powder and toothpaste are expected to remain resilient, its fine fragrances division has been negatively impacted by the closure of perfumeries and the decline in tourism.
In an interview with Reuters, Givaudan’s CEO, Gilles Andrier, stated that the company observed a surge in demand towards the end of the first quarter and expects this trend to continue in April. He mentioned that while the fine fragrances sector, which represents about 10% of the company’s sales, is expected to decline further, other areas of the business are projected to remain strong. Givaudan has reaffirmed its guidance of 4%-5% average sales growth per year until the end of 2020.
Despite the positive sales growth, Givaudan’s shares experienced a 1.9% dip at 0832 GMT, slightly underperforming the European chemicals sector index. However, analysts remain optimistic about the stock, considering its outperformance in the sector this year.
Andrier noted that the growth in the first quarter has helped maintain profitability for the company. Additionally, as the pandemic has led to a halt in business travel, capital investment, hiring, and project activity, Givaudan is experiencing cost savings. However, meeting the increased demand has presented challenges for the company’s supply chains. Andrier explained that the situation has been chaotic, requiring a significant amount of work and exceptions to be made. Givaudan had to seek new suppliers and routes for sourcing ingredients, especially in India where the company typically obtains jasmine, spices, and certain chemicals. The company has managed to mitigate some of these challenges through its centralized supply chain management in Budapest, Buenos Aires, and Kuala Lumpur.
The COVID-19 pandemic has compelled governments worldwide to enforce lockdown measures, severely impacting businesses and altering consumer consumption habits. Givaudan was forced to temporarily close one of its production sites near Zurich in early March after an employee tested positive for the virus. However, Andrier mentioned that most of the company’s factories are operating at full capacity, sometimes even running 24 hours a day, in order to limit contact among staff.
Analyst Jean-Philippe Bertschy from Vontobel shared optimism about Givaudan’s stock, rating it as a buy. He highlighted the company’s attractive defensive profile and strong cash returns. Bertschy also emphasized that the crisis is expected to increase global focus on hygiene and food safety, which will benefit Givaudan in the long run.