Beiersdorf Earnings: Outstanding Performance Leads To Higher Sales Guidance

Narrow-moat Beiersdorf BEI delivered a strong set of first-half 2023 results, ahead of FactSet consensus and our expectations. Growth momentum in the first quarter was maintained (12.3% organic sales growth for the first half versus 12.2% for the first quarter), with an excellent performance from the consumer segment (14.9% organic sales growth for the first half). The consumer EBIT margin also came in almost 200 basis points higher at 17%. This was partially driven by gross margin improvement (50 basis points). The performance of the Tesa business segment (17% of revenue) was more muted, delivering organic sales growth of 1.2% and a 70-basis-point decline in the EBIT margin to 18.4%.

In light of these strong results management increased guidance for 2023 for the consumer segment, now targeting organic sales growth in the high-single-digit to low-double-digit range (from mid- to high single digit previously) and reconfirmed the 50-basis-point EBIT margin improvement. We believe the guidance is conservative, especially for margin given the strong first-half performance. It assumes a significant margin deterioration in the second half compared with 2022, which we think is unlikely as cost inflation moderates further. We have revised our revenue growth estimate and EBIT margin for the year higher. We now expect 9.5% top-line growth for 2023 (from the prior-year midsingle digit) and an 80-basis-point higher EBIT margin excluding special factors compared with the prior year (60 basis points higher previously). Consequently, we increase our fair value estimate by 7.5% to EUR 100. Even after this bump in our fair value estimate, we view shares as overvalued and suspect the firm’s balance sheet optionality plays a part in the hefty premium that Beiersdorf trades at. Still, we don’t believe minority shareholders are able to benefit from the excess cash and investments given the firm’s subpar shareholder distributions, the basis of our Poor Morningstar Capital Allocation Rating.