Company Reports

In January 2022, Henkel announced the decision to combine its beauty care and laundry and home care business units into one consumer unit in an attempt to achieve more synergies in its customer and channel execution after years of subpar performance, especially in North America. While we believe that operating an overall larger portfolio is important in driving customer management, we see limited upside in terms of growth as there is little marketing and innovation expertise to be shared between the units. Moreover, large competitors in the space are moving in the opposite direction, with Unilever for instance recently announcing that it would move from three divisions to five business groups, with each responsible for end-to-end strategy and execution.

Narrow-moat Henkel reported first-quarter 2024 organic sales growth of 3%, slightly ahead of the Vara consensus of 2.7%. The group saw resilient pricing and sequential improvement in volumes across both operating segments. Given the solid momentum, management recently upgraded the full-year guidance, now expecting adjusted EPS growth of 15%-25% from 5%-20% previously. This should be driven by stronger organic sales growth in the range of 2.5%-4.5% (from 2%-4% previously) and a higher adjusted EBIT margin in the range of 13%-14% (from 12%-13.5% previously). The share price has soared around 20% over the last six months, converging to our fair value estimate, which we increase by 5% to EUR 86 to account for the time value of money and an improvement in our short-term forecast. Our 2024 forecast calls for organic sales growth of 3.7% and an adjusted EBIT margin of 13%, compared with 2.4% and 12.4% previously, respectively.

Narrow-moat Henkel reported 2023 adjusted operating profit of EUR 2.6 billion, in line with our expectations, guidance, and Vara consensus. This represents year-over-year growth of around 10% and translated into an operating margin improvement of 150 basis points to 11.9%. Positive pricing developments combined with measures to reduce costs in the adhesive technologies and consumer brands divisions were the primary drivers of this performance. As expected, the integration of the beauty care and the laundry and homecare businesses into one consumer brands unit already achieved EUR 200 million of savings in 2023 out of the total of EUR 250 million expected by the end of 2024. However, the macroeconomic picture for 2024 remains challenging, with management anticipating modest growth in industrial demand and consumer spending. The company expects organic sales growth of 2%-4% alongside an adjusted operating margin of 12%-13.5%. Our 2024 forecast is toward the lower end of both these ranges, assuming revenue growth of 2.4% and an adjusted EBIT margin of 12.4%. We don’t expect to make any material changes to our estimates at this time and confirm our EUR 82 fair value estimate. Shares remain undervalued.

Narrow-moat Henkel reported sequential volume improvement and hinted at continued profit margin recovery in its third-quarter trading update. The integration of the beauty care and laundry and home care business units into one consumer brands unit is progressing ahead of plan, with 80% of the targeted first phase net savings of around EUR 250 million expected to be achieved this year. These are primarily personnel-related savings as Henkel implements a leaner organizational setup. Given the positive developments in the quarter, the full-year guidance was narrowed at the higher end for both organic sales growth and adjusted EBIT margin. Organic sales growth is expected to end the year between 3.5% to 4.5% (from 2.5% to 4.5% previously), while the adjusted EBIT margin is expected to fall between 11.5% and 12.5% from a range of 11% to 12.5% previously. Given the higher savings expected this year, we have increased our 2023 adjusted EBIT margin forecast to 12% from 11% previously. Still, negative currency effects and the impact of the sale of the business in Russia weigh on the top line and more than offset the benefit of the higher expected organic sales growth, leaving our 2023 nominal sales forecast 3.4% lower compared to 2022. With this, our fair value estimate remains unchanged at EUR 82 per share. Shares were up around 3% in intraday trading but continue to be undervalued.

In January 2022, Henkel announced the decision to combine its beauty care and laundry and home care business units into one consumer unit in an attempt to achieve more synergies in its customer and channel execution after years of subpar performance, especially in North America. While we believe that operating an overall larger portfolio is important in driving customer management, we see limited upside in terms of growth as there is little marketing and innovation expertise to be shared between the units. Moreover, large competitors in the space are moving in the opposite direction, with Unilever for instance recently announcing that it would move from three divisions to five business groups, with each responsible for end-to-end strategy and execution.

Narrow-moat Henkel delivered first-half 2023 organic sales growth of 4.9% and an 80-basis-point improvement in adjusted operating margin compared with the same period of last year. This was primarily the result of pricing actions taken across both segments. The EBIT margin was also boosted by savings related to the integration of all the consumer brands under one roof (primarily a result of personnel reductions). In light of the solid first-half results, management increased the full-year guidance for both organic sales growth and earnings. Organic sales growth is now expected to land between 2.5% and 4.5% (compared with 1% to 3% previously) and the adjusted EBIT margin target range has been increased to 11% to 12.5% (compared with 10% to 12% previously). Our forecast already assumed an adjusted EBIT margin of 11% for 2023, which now sits at the bottom of the updated guidance range. In terms of the top line, the higher organic sales growth is expected to be offset to some extent by a mid-single-digit negative currency impact on sales (negative low single digits previously). Therefore, all in all, we don’t expect to materially change our EUR 82 fair value estimate. Shares remain undervalued at current levels.

Narrow-moat Henkel delivered revenue growth of 6.4% for the first quarter (out of which organic sales growth was 6.6%), significantly ahead of FactSet's 3.5% consensus revenue growth estimate. Despite this relatively strong performance, management confirmed full-year organic sales growth guidance in the range of 1% to 3% for the group. Although we believe this is slightly conservative, we appreciate that there is substantial uncertainty with regard to the full-year volume and price development. Volume growth has been consistently deteriorating in recent quarters, and the strong pricing in the first quarter (12% contribution to growth) is likely to be in large part a carryover impact from the previous year's pricing actions, with further pricing likely to be more muted. We don't expect to make any changes to our 2023 forecast at this time, which is broadly aligned with the guidance, and therefore we reconfirm our EUR 82 fair value estimate.

Narrow-moat Henkel reported full-year 2022 results that largely tracked our expectations, with an adjusted operating profit of EUR 2.4 billion roughly in line with our EUR 2.3 billion forecast. Despite largely unsurprising results, a somber 2023 guidance sent shares down 3% on the day. Management expects continued macroeconomic headwinds to result in a slowdown in both industrial production and consumer spending, translating into muted organic sales growth for the company and an adjusted operating margin in the range of 10% to 12%—significantly below pre-inflation and prepandemic average levels (of 13.4% and 17%, respectively).

In January 2022, Henkel announced the decision to combine its beauty care and laundry and home care business units into one consumer unit in an attempt to achieve more synergies in its customer and channel execution after years of subpar performance, especially in North America. While we believe that operating an overall larger portfolio is important in driving customer management, we see limited upside in terms of growth as there is little marketing and innovation expertise to be shared between the units. Moreover, large competitors in the space are moving in the opposite direction, with Unilever for instance recently announcing that it would move from three divisions to five business groups, with each responsible for end-to-end strategy and execution.

Narrow-moat Henkel maintained its strong top-line growth momentum in late 2022, posting organic sales growth of 11.3% in the third quarter (versus 10.9% in the second quarter). The adhesive technologies business unit was the main contributor to this strong result, delivering organic sales growth of 16.8%. In light of the resilient performance recorded in the quarter, we lift our organic sales growth forecast for 2022 to 8% from a prior 6.8% to reflect the better-than-expected third-quarter result but maintain our adjusted EBIT margin forecast of around 11%. Our revised 2022 financial estimates align with management’s updated full-year 2022 guidance for organic sales growth of 7%-8% (up from 5.5%-7.5% previously) and adjusted EBIT margin of 10%-11% (up from 9%-11% previously). However, we’ve trimmed our 2023 sales growth and profit margin expectations in light of the deteriorating near-term macroeconomic environment in Europe. Still, with our long-term expectations for Henkel unchanged, we make no changes to our fair value estimate of EUR 81.

Narrow-moat Henkel reported strong first-half organic sales growth of 8.9% year over year, ahead of expectations. Pricing accelerated in the second quarter to 11.2% year over year, with volume proving resilient at flat over the same period. After digesting the results, we are raising our fair value estimate to EUR 81 per share from EUR 80 to account for the time value of money. Some further adjustments to our forecast—a more favorable top-line delivery driven by pricing and a more negative margin outlook over the near term—are overall value-neutral.

In January 2022, Henkel announced the decision to combine its beauty care and laundry and home care business units into one consumer unit in an attempt to achieve more synergies in its customer and channel execution after years of subpar performance, especially in North America. While we believe that operating an overall larger portfolio is important in driving customer management, we see limited upside in terms of growth as there is little marketing and innovation expertise to be shared between the units. Moreover, large competitors in the space are moving in the opposite direction, with Unilever for instance recently announcing that it would move from three divisions to five business groups, with each responsible for end-to-end strategy and execution.

Following a transfer of coverage, we lower our fair value estimate for narrow-moat Henkel to EUR 80 from EUR 98 as we incorporate in our forecast the latest margin outlook and developments related to the war in Ukraine. Henkel reported a stronger than expected 7% preliminary first-quarter organic sales growth, driven by double-digit pricing in the adhesives segment. However, management lowered the full-year margin guidance by a further 250 basis points, as it now expects mid-twenties direct material cost inflation, double the level communicated just two months ago. This is one of the most negative updates in the sector and has led to shares shedding around 8% on the announcement.

In January 2022, Henkel announced the decision to combine two of its business units (beauty care, and laundry and home care) into one consumer unit in an attempt to achieve more synergies in its customer and channel execution after years of subpar performance, especially in North America. While we believe that operating an overall larger portfolio is important in driving customer management, we see limited upside in terms of growth as there is little marketing and innovation expertise to be shared between the units. Moreover, large competitors in the space are moving in the opposite direction, with Unilever for instance recently announcing that it would move from three divisions to five business groups, with each responsible for end-to-end strategy and execution.

Henkel reported an in-line fourth quarter with few surprises, as margins began to contract in the face of rising cost inflation. Management's outlook for 2022 is also consistent with our expectations, with continued pressure from raw material costs likely to subdue margins for another year. We are reiterating our narrow moat rating and EUR 98 fair value estimate for both the ordinary and preferred shares, and consider it to be a lower quality franchise relative to some of its larger peers, but undervalued at current market prices.

After several years of impressive margin expansion--Henkel's reported EBIT margin grew from 11.3% in 2011 to 15.7% in 2018 before collapsing to an adjusted 13.4% during the coronavirus pandemic, and it may be another year before the company can rebuild its margins again.

Henkel reported strong organic sales growth of 3.5% year over year in the third quarter, with emerging markets offsetting a decline in North America, and adhesives technologies offsetting a disappointing performance in the consumer business. At this rate, Henkel seems likely to beat our full-year estimate of 3.4% reported sales growth, and we have tweaked our short-term forecasts accordingly, but this has no impact on our EUR 98 fair value estimate. We regard Henkel's shares as being undervalued and the current market price more than prices in "transitory" inflationary effects, which are causing the margin pressure apparent in management's lower full-year guidance. However, if inflation lingers beyond that, there could be downside to our estimates, and for the time being, we recommend investors seeking shelter from inflationary pressures look to companies with best-in-class gross margins and pricing power, such as the prestige cosmetics companies and distillers.

After several years of impressive margin expansion--Henkel's reported EBIT margin grew from 11.3% in 2011 to 15.7% in 2018 before collapsing to an adjusted 13.4% during the coronavirus pandemic--we believe the company must now dial back some of those gains in order to avoid stagnation in its growth rate.

Henkel's first-half 2021 report showed that business is bouncing back from COVID-19, with net revenue growth again beating our forecasts. Management raised its full-year sales guidance but maintained its prior earnings guidance, implying margin pressure in the second half of the year. We believe this explains the market's subdued response to the report. Henkel now trades at a moderate discount to our fair value estimate of EUR 98, which remains unchanged. These results show that Henkel is an almost equal split between defensive consumer products and more cyclical adhesives products tied to industrial production. The shares may perform well if the global economy continues to power ahead, while offering something of a natural hedge if the macroeconomic picture slows.

Henkel reported strong first-quarter sales growth, with revenue above our forecasts. We are pulling forward our assumption on the rebound, but this is primarily a timing issue and has little impact on our EUR 98 fair value estimate for the preferred and ordinary shares. After two years of underperformance, Henkel's shares have rallied in recent months and we now regard them as being fairly valued. Having said that, these results show that Henkel is an almost equal split between defensive consumer products and more cyclical adhesives products tied to industrial production. The shares may perform well if the global economy continues to power ahead, while offering something of a natural hedge when the macroeconomic picture slows.