Henkel AG Chief Executive Officer Kasper Rorsted, whose company makes products from Right Guard deodorant to Loctite adhesives, said he sees no short-term catalyst for improvement in Europe’s economy.
“The only economy that gives us worries is the European economy,” with the region’s 28 million unemployed, he said yesterday in an interview at Bloomberg headquarters in New York. “The U.S. seems to be stable.”
About one-third of the Dusseldorf, Germany-based company’s second-quarter sales came from western Europe. Unlike the U.S., Europe can’t rely on population growth or lower fuel prices to help jump-start growth, Rorsted said. The region did get some positive news yesterday, as European Union data showed that the euro area’s economy emerged from a record-long recession during the quarter, led by Germany and France.
In the longer term, a free trade agreement with the U.S. might provide a solution, the 51-year-old CEO said.
“If I was a politician, I would push very hard in trying to figure out how to get a trade agreement in place that would create a million jobs on a continent,” he said. “The U.S. will have a profound impact on European growth.”
Henkel has seen an increasing proportion of its growth coming from Russia, China and other emerging markets. Those markets helped push second-quarter profit to 660 million euros ($875 million), exceeding analysts’ estimates. Emerging-market sales rose to 45 percent of the total in the quarter.
Half of Henkel’s business will come from developing markets within the next four years, Rorsted told Bloomberg Television last week.
Even with continued growth in emerging markets, Rorsted said yesterday he expects the U.S. to remain Henkel’s top market in his lifetime. Germany is the second-largest, followed by China and Russia.
Faster-growing markets like China and Turkey “will get closer to Germany” in the next few years, “but they will not get closer to the U.S.,” Rorsted said.
While slower-growing than emerging markets, the U.S. is less volatile and is the most profitable for consumer products, he said. North America will also be a focus for acquisitions, Rorsted said. Targets are elusive, though.
“Right now, it is an M&A market with very, very little activity,” Rorsted said. On the consumer-products side, “it’s an extremely consolidated market.”
About half of Henkel’s sales come from its adhesives business, where they are used everywhere from iPhones to airplanes. Laundry and household brands like Purex make up another 28 percent, with the remaining 22 percent coming from cosmetics and toiletries.
Henkel will consider acquisitions for all three units, Rorsted said.
“We’re quite bullish on the North American economy in the long term,” he said. “We think it has much higher growth potential than Europe” because of lower debt and unemployment (UMRTEMU), a growing population and better access to energy.
The 17-nation euro area’s gross domestic product rose 0.3 percent in the April-June period after a 0.3 percent contraction in the previous three months, the EU’s statistics office in Luxembourg said yesterday. That exceeded the median estimate of 0.2 percent growth in a Bloomberg News survey of 41 economists and brought to a close six straight quarters of contraction, the longest slump since the euro’s debut in 1999.
Unemployment in southern Europe remains at record rates, with more than half of young people in Spain and Greece out of work.
Europe does have advantages, Rorsted said, including a stabilization in private label sales and almost no new competitors.
“Europe is still a very attractive market for us,” he said. “It’s just growing slow on the top line and on the bottom line.”
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