Henkel Profit Beats Estimates on Adhesives, Home Care

Nov. 12 (Bloomberg) –- They make soap, shampoo and lose sleep over stains, but today Henkel, the German consumer goods company, is more focused on their earnings. Bloomberg international correspondent Hans Nichols recently visited their Duesseldorf headquarters to talk to CEO Kasper Rorsted about the company's longer-term strategy. (Source: Bloomberg)

Henkel AG, the German maker of Loctite glue and Fa deodorant, raised its full-year profitability goal after third-quarter earnings beat estimates, helped by growth at its laundry and home-care unit.

Earnings before interest and tax will be about 15 percent of sales, the Dusseldorf-based company said in a statement today, compared with a previous forecast of 14.5 percent. The margin exceeded 16 percent for the first time last quarter.

“The margin is excellent,” said Joerg Philipp Frey, an analyst at M.M. Warburg in Hamburg. “Laundry and home-care performed nicely. I expected even a bit more in adhesives.”

Henkel preferred shares climbed as much as 2.3 percent to a record 83.48 euros. The stock has risen 33 percent this year, boosted by growth in emerging markets, where the company plans to have 60 percent of workers and 50 percent of revenue by 2016. Third-quarter sales gains were led by the laundry and home-care unit, which produces Mir wool and silk detergent.

Earnings before interest and taxes rose 6.5 percent to 672 million euros ($900 million) in the quarter, excluding one-time items and restructuring costs. That beat the 663 million-euro average of 10 analyst estimates compiled by Bloomberg.

Group revenue gained 4.2 percent on an organic basis, compared with the 4.3 percent median estimate of nine analysts. Unfavorable currency fluctuations, including weakness of the dollar, Russian ruble and Turkish lira, meant reported sales declined 2.6 percent to 4.18 billion euros, compared with the 4.35 billion-euro average of 13 analysts’ estimates.

Product Innovations

Laundry and home-care sales gained 5.5 percent excluding acquisitions, disposals and currency shifts, driven by demand in eastern Europe, Latin America and Germany, Henkel said. Growth was boosted by product innovations such as Persil lavender freshness detergent and Somat gel caps for dishwashers.

Adhesives revenue rose 4.2 percent on the same basis. The unit, accounting for about half of Henkel’s sales, makes glues that are used from iPhones to airplanes. Henkel opened the world’s largest adhesives factory in China in September.

Organic sales at the cosmetics and toiletries division, which sells Schwarzkopf hair dye and Diadermine skin cream, rose 3.1 percent. Promotional pressure remains high in the household and personal-care industry, especially in North America, Russia and southern Europe, the company said.

“The economic environment was a lot less friendly this year than anticipated,” Chief Executive Officer Kasper Rorsted told analysts on a conference call. “I don’t think any of us has seen the level of currency headwind that we’ve seen this year, and that was not part of the anticipation.”

Acquisition Funds

While the European economy will continue to struggle, Henkel expects the U.S. to improve next year and remains upbeat on China, the CEO said in an interview with Mark Barton on Bloomberg Television today. The new adhesives plant that Henkel opened in China is predominantly for “new domestic demand,” Rorsted said on the call.

Henkel continues to look at acquisitions in all regions and business units, Chief Financial Officer Carsten Knobel told analysts. The company has about 4 billion euros to 4.5 billion euros available for purchases, Knobel said.

Henkel reiterated that it expects organic sales growth of 3 percent to 5 percent this year. The company has a target of increasing revenue to 20 billion euros in 2016 from 16.5 billion euros last year, with half of sales coming from markets such as Latin America or the Asia-Pacific region.

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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