Henkel Earnings: Increased Sales and Earnings Guidance With Volumes Expected to Improve Sequentially

Narrow-moat Henkel HEN 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.

In the consumer segment, volume continued to deteriorate in the second quarter (first-quarter volumes were down by 5.7%, second-quarter volumes were down by 10.9%). This was due to prolonged trade negotiations (an estimated impact of negative 3.5% on volumes in the second quarter) as well as down-trading activities that saw private label fare gaining share. Unsurprisingly, this primarily impacted the laundry and home care business area. We think this category is fairly commoditized, and Henkel’s pricing power is relatively weak here. Still, management indicated that trade negotiations are now broadly concluded and to expect to see an improvement in the volume development in the second half of the year.