Profit targets waived: high costs shake up Henkel

Yield targets waived
Rising costs shake Henkel

4/29/2022 10:54 AM

Burdens are higher than expected: Dax Henkel Group cannot operate profitably as previously planned. Apparently, the company cannot pass on costs to customers. Investors are clearly reacting to the common cold.

Consumer goods group Henkel cuts its earnings forecast in light of higher-than-expected increases in material costs and the consequences of Russia’s invasion of Ukraine. “Given these developments, we now expect a much higher burden on our profit numbers for the rest of the year than at the beginning of the year,” said Henkel CEO Karsten Noble. In terms of sales growth, the Pritt and Persil manufacturer is more optimistic than before thanks to higher prices, especially for adhesives. Henkel shares collapsed on the stock exchange. Sometimes they were less than ten percent.

In the first quarter, Henkel reported total sales of approximately 5.3 billion euros. Organic sales increased 7.1 percent, mainly due to a boom in business in the adhesives division – the group’s largest area. The struggling cosmetics business shrank in the quarter, but Henkel managed to grow in Persil-related detergents.

For the year as a whole, Knobel now expects organic sales growth of 3.5 to 5.5 percent (previously: two to four percent). However, earnings are affected by higher material and logistics costs and the group’s withdrawal from Russia and Belarus. The departure of Russia and Belarus “affects annual sales totaling about 1 billion euros and more than 2,500 employees,” Knoble said.

Details of the group’s restructuring in May

He now expects a lower adjusted return on sales (EBIT margin) in the nine to eleven percent range (previously: 11.5 to 13.5 percent). Adjusted earnings per preferred share (EPS) will likely shrink 35 to 15 percent and therefore more than expected. Regarding material prices alone, management is now assuming an increase in the average range of twenty percent for the year as a whole compared to the annual average for 2021. “This is an additional burden for the year as a whole of about two billion euros,” according to Knobel.

Apparently, Henkel cannot fully transfer the increased costs to customers. Henkel boss had already put a question mark behind the original profit targets at the end of March

The development hit the Düsseldorf group at the wrong time – they are currently transforming it. Knobel wants to integrate the cosmetics and detergents business. In May, when presenting the quarterly figures, he wants to provide details of the new squad, which is supposed to be completed by 2023 at the latest. Knobel declared that the conversion creates “a broader basis to improve our portfolio more consistently and bring it to a higher growth and margin profile.” Now he first had to correct his margin targets for 2022.

Competitor Beiersdorf expects a no special effects EBIT operating margin at the prior-year level of 13 percent for the current year and recently confirmed those expectations. The high-end manufacturer also expects sales growth in the mid-single-digit range.