Yield targets cashed
High costs shake Henkel
04/29/2022 10:54 am
The burdens are higher than expected: the Dax group Henkel cannot work as profitably as previously planned. Apparently, the company cannot pass the costs on to customers. Investors are clearly reacting coldly.
Consumer goods group Henkel is lowering its earnings forecasts in light of higher-than-expected increases in material costs and the consequences of the Russian invasion of Ukraine. “Against the background of these developments, we now expect a significantly higher burden on our earnings figures for the rest of the year than at the beginning of the year,” said Henkel CEO Carsten Knobel. In terms of sales growth, however, the manufacturer of Pritt and Persil is more optimistic than before thanks to rising prices, especially for its adhesives. Henkel shares collapsed on the stock exchange. At times they were down more than ten percent.
In the first quarter, Henkel reported total sales of around 5.3 billion euros. Organic sales increased by 7.1 percent, primarily due to flourishing business in the adhesives division – the largest area of the group. The ailing cosmetics business shrank in the quarter, but Henkel was able to grow in detergents related to Persil.
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, profits are being weighed down by rising material and logistics costs and the group’s withdrawal from Russia and Belarus. The departure from Russia and Belarus “affects annual sales totaling around one billion euros and more than 2,500 employees,” said Knobel.
Details on the restructuring of the group in May
He now expects a lower adjusted return on sales (EBIT margin) in the range of nine to eleven percent (previously: 11.5 to 13.5 percent). Adjusted earnings per preferred share (EPS) will probably shrink by 35 to 15 percent and thus more than expected. For material prices alone, management is now assuming an increase in the mid-twenty percent range for the year as a whole compared to the annual average for 2021. “These are additional burdens for the year as a whole of around two billion euros,” calculated Knobel.
Apparently, Henkel cannot pass the increased costs on to customers in full. The Henkel boss had already put a question mark behind the original profit targets at the end of March
The development hits the Düsseldorf group at the wrong time – it is currently working on its conversion. Knobel wants to merge the cosmetics and detergent business. In May, when presenting the quarterly figures, he wants to present details of the new line-up, which should be completed by 2023 at the latest. The conversion creates “a broader foundation to optimize our portfolio even more consistently and bring it to a higher growth and margin profile,” announced Knobel. Now he first had to correct the margin targets for 2022.
Competitor Beiersdorf expects an operating EBIT margin without special effects at the previous year’s level of 13 percent for the current year and had recently confirmed this forecast. The high-end manufacturer also expects sales growth in the mid-single-digit range.