Henkel cuts outlook, blames lower Q2 sales on beauty, adhesives units

Berlin

GERMAN consumer goods company Henkel lowered its full-year outlook for sales and earnings on Tuesday, blaming disappointing performance at its beauty unit and a hit to its adhesives business from falling industrial production.

Henkel has underperformed rivals such as Procter & Gamble Co (P&G) and Unilever in recent years. It warned in January that earnings would fall in 2019 as it hikes investment in brands and digital technology to try to revive growth.

The maker of Schwarzkopf shampoo and Persil detergent said second-quarter sales fell by an organic 0.4 per cent to 5.121 billion euros (S$8 billion), while earnings per share fell 9.5 per cent to 1.43 euros, both below average analyst forecasts.

"Second quarter is below modest expectations and 2019 group sales guidance has been lowered," said Jefferies analyst Martin Deboo. "The misery continues." Henkel's shares fell 6.4 per cent in early Frankfurt trade on Tuesday.

Chief executive Hans van Bylen said Henkel was hit by a significant fall in demand from key industries like the automotive and electronics sectors and it no longer expected industrial demand to pick up in the second half of the year.

Sales at the adhesives unit, which account for almost half of total sales, fell by an underlying 1.2 per cent, which Mr van Bylen described as a "robust" performance given the weaker market, with demand from the aerospace and paper industries still showing strong growth.

Sales of beauty care fell 2.4 per cent, sagging in western Europe and North America, and hit by stock issues in China, although the professional haircare business kept growing strongly.

Earlier this month, German rival Beiersdorf reported slowing sales growth for its Nivea skincare brand in the second quarter, but confirmed its outlook for full-year group sales growth of 3-5 per cent.

Mr van Bylen said there were signs of improvement in Henkel's European haircare after initiatives to revive brands and launch new ones. The group has also seen strong growth for Got2b styling products although Dial body care is still struggling in North America.

Henkel said it now expects organic sales growth, stripping out the impact of currencies and acquisitions, of between zero and 2 per cent for fiscal year 2019, down from 2-4 per cent previously, with the adhesive unit showing growth of -1 to one per cent and beauty care between 0 and -2 per cent.

The laundry and home care division is still expected to grow 2-4 per cent in the full year after expanding 2 per cent in the second quarter, helped by a global relaunch of Persil detergent and a drive to sell more online-friendly products.

Henkel forecast adjusted earnings per preferred share (EPS) to fall by a mid- to high single-digit percentage at constant exchange rates, down from a previous outlook for a fall of a mid-single-digit percentage range. REUTERS