Henkel raises its expectations and targets for fiscal 2023

In the third quarter of 2023, Henkel reported a profit of approximately 5.4 billion euros and a 2.8 percent increase in organic sales. This increase is due to the constant rise in prices due to the significant increase in the cost of raw materials compared to the previous year. Although sales volume has declined, there has been a marked improvement compared to the second quarter. However, in absolute figures, sales were down 9% compared to the previous quarter, mainly due to the exit from the Russian market in the second quarter and negative exchange rate effects.

Despite the difficulties in the market, the company has managed to continue its growth during the third quarter thanks to both business units. Due to these results, the company has increased its outlook for the current year. Henkel CEO Carsten Knobel said that they expect a significant increase of 15% to 25% in adjusted earnings per preferred share at constant exchange rates.

“In addition to strengthening our Adhesive Technologies portfolio with an attractive acquisition, it also reflects our focus on growth through mergers and acquisitions. We are far exceeding our expectations in integrating our consumer brands business, which is the largest transformation our company has undergone in decades,” said Knobel.

Although demand was weak in some important markets, Henkel’s Adhesive Technologies business unit achieved positive organic sales growth in the third quarter thanks to the Mobility & Electronics and Craftsmen, Construction & Professional divisions. In addition, the Consumer Brands business unit, which has been operating under a new configuration since the beginning of the year, experienced strong organic growth driven by its global Laundry & Home Care and Hair areas.

“In both business units, volume development has clearly improved in the third quarter compared to the previous quarter, confirming our expectations expressed when we published our first-half results. And for the following quarter we expect a further sequential improvement,” Knobel remarked. said Knobel.
During this period, Henkel continued to advance its strategic growth program. In addition, Critica Infrastructure was acquired, enabling the Adhesive Technologies business unit to expand its portfolio and establish a platform for future growth. Critica is recognized for its innovative solutions in repair and reinforcement of composite materials for various industrial applications. On the other hand, the integration of the consumer businesses into the Consumer Brands unit is proceeding at a faster pace than expected.

Around 80% of the net savings of around €250 million in the first phase are expected to be realized by the end of 2023, instead of the originally planned deadline of the end of 2024. The company has also focused its portfolio only on brands and products with solid growth potential and profitable margins.

“During the third quarter, consistent promotion of strategic priorities was maintained in both business units. Thus, progress continues to be made toward the goal of achieving further growth and strengthening the leading market position globally,” Knobel said.
Although group sales in the third quarter of 2023 declined by -9.0% compared to the same period of the previous year, there was growth of 2.8% in organic terms. These results are due to higher prices in both business units, and although volumes decreased, they showed an improvement compared to the previous quarter. Acquisitions and divestitures had a negative impact of -5.5% on sales, while the exchange rate also had a negative impact with a reduction of -6.3%.

In the first nine months of the year, Henkel’s sales totaled 16,366 million euros, which translates into a decline of -3.1 percent in nominal terms. However, at the organic level, the company experienced significant growth of 4.1%, thanks to a significant increase in prices.
During the third quarter, organic sales increased due to growth in Europe, North America, Latin America and IMEA. However, the Asia-Pacific region has seen a decline in organic sales due to the difficult market situation in China. In the first nine months of the year 2023, Henkel also experienced a naturally strong increase in sales, thanks to momentum in all regions except Asia-Pacific.

Furthermore, with respect to the third quarter of 2023, the Adhesive Technologies business unit posted earnings of €2,711 million, this being a decline of -9.5% compared with the previous year, which recorded sales of €2,995 million. However, adjusting the data for exchange rates and acquisitions/divestments, an organic increase of 0.8% is observed. This increase is mainly due to higher prices, as volumes have underperformed compared to the previous year due to moderate demand in some markets. In addition, acquisitions/divestments also negatively affected sales by -3.8%, while exchange rate effects had an additional negative impact of -6.5%.

During the first 9 months of 2023, the Adhesive Technologies business unit experienced a nominal decline in sales of -3.3%, totaling €8,186 million. Internally, however, the business unit achieved a notable increase in sales of 3.3%, thanks to price increases.
During the third quarter, the company achieved a positive increase in sales thanks to the Mobility & Electronics and Craftsmen, Construction & Professional divisions. The former had organic growth of 4.6%, driven by its activity in the automotive sector. However, Electronics’ results were lower due to low demand. On the other hand, Industrial reported positive sales growth. Packaging & Consumer Goods had a negative evolution of -5.0% due to a decrease in demand and high levels reached in the previous year. Finally, Craftsmen, Construction & Professional experienced organic growth of 2.8%, thanks to the Construction and Consumer & Craftsmen business. However, General Manufacturing & Maintenance had a slight drop due to a weakness in demand.
For the third quarter, the Adhesives Technologies business unit’s results were mixed at the regional level. In Europe, sales fell slightly in organic growth. Although the Mobility & Electronics and Craftsmen, Construction & Professionals sectors performed well, they were unable to offset the decline in sales in the Packaging & Consumer Goods area. In North America, there was positive growth in sales thanks to the Mobility and Electronics sector. The IMEA region posted double-digit sales growth, driven by all sectors. On the other hand, Latin America had a strong increase in sales thanks to the Mobility & Electronics and Packaging & Consumer Goods sectors. However, Asia-Pacific had a decrease compared to the previous year due to the difficult market environment in China, which affected all sectors.

In the last quarter of 2023, the Consumer Brands business unit posted total sales of €2,695 million, representing a nominal decline of -7.6% compared with the same period of the previous year. However, adjusting for the exchange rate and acquisitions/divestments, sales increased by 6.2%. This increase is mainly due to a significant increase in prices, while volumes decreased due to decisions taken to optimize the product portfolio. In addition, they were negatively affected by exchange rate effects (-6.3%) and acquisitions/divestments (-7.5%).
In the first nine months of 2023, the Consumer Brands business unit achieved sales of €8.06 billion, down -2.3% in nominal terms year-on-year. However, at the organic level, sales increased by 5.9%, thanks to price momentum.

During the third quarter, the Laundry & Home Care division experienced significant organic sales growth, reaching 5.8%. This increase is mainly due to the successful performance of Laundry Care, whose sales have increased thanks to the outstanding sales of fabric care products. The Home Care business also posted outstanding growth, with a significant increase in sales of home care products, especially in the toilet care category.

In the third quarter, the Hair section, belonging to one company in particular, achieved a significant increase in sales of 8.9%. Within this sector, the Consumer division experienced double-digit growth, driven by the Hair Styling and Hair Care divisions. On the other hand, the Professional business has achieved solid growth in organic sales.

During the third quarter, the Other Consumer Businesses had a decrease in organic sales of -0.6%, which is mainly due to decisions made related to their product portfolio.

In regional terms, the Consumer Brands division experienced solid organic sales growth in the third quarter in Europe, thanks mainly to the Hair sector. North America has also had significant sales growth originating from all business areas. Latin America had very strong organic sales growth, dominated by the Hair sector. IMEA achieved double-digit organic sales growth, thanks to the contribution of Laundry & Home Care and Hair. On the other hand, Asia-Pacific had lower organic growth than the previous quarter because the Hair sector was affected by the low market development, especially in China.

During the period under analysis, there were no significant changes in the value of the assets and the economic situation of the group in relation to that recorded as of June 30, 2023. Taking into account the earnings reports for the first quarter of 2023 and the projections for the remainder of the year, the Management Board of Henkel AG & Co. KGaA has decided to raise its expectations for the fiscal year 2023.

For the Henkel Group, organic sales are forecast to increase by 3.5 to 4.5 percent in 2023 (previously 2.5 to 4.5 percent). The Adhesive Technologies business unit is expected to have organic sales growth of 2.5% to 3.5% (previously 2.0% to 4.0%) and the Consumer Brands business unit is expected to increase by 5.0% to 6.0% (previously 3.0% to 6.0%).

The Henkel Group has updated its profitability expectations for the current year. They now expect an adjusted EBIT margin of 11.5% to 12.5%, compared to the previous estimate of 11.0% to 12.5%. In addition, profitability is forecast at 14.0% to 15.0% for the Adhesive Technologies business unit and 10.0% to 11.0% for the Consumer Brands business unit. These figures have increased slightly from the previous estimates of 13.0% to 15.0% and from 9.5% to 11.0%, respectively.
However, restructuring costs are expected to be around EUR 300 million, a figure that had previously been estimated at between EUR 300 million and EUR 350 million. During the last period, cash outflows totaling 650 million euros were reported due to investments in fixed and intangible assets. Previously, a range of 650 to 750 million euros was estimated for these investments.