Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Henkel AG & Co KGaA (HELKF, Financial) reported a 2.9% organic sales growth at the group level for the first half of 2024.
- The Consumer Brands business delivered a standout performance with 4.3% organic sales growth.
- Adhesive Technologies achieved a 2.0% growth, driven by strong performance in the automotive sector and recovery in electronics.
- The company recorded a significant margin increase and an EPS increase, supported by portfolio optimization and supply chain efficiencies.
- Henkel AG & Co KGaA (HELKF) raised its earnings guidance for the full year 2024, reflecting strong business performance and confidence in meeting mid to long-term financial targets.
Negative Points
- North America sales declined organically by 1.6%, impacted by ongoing portfolio measures and challenging market conditions.
- The company faced a challenging environment in the general manufacturing and maintenance business, which remained slightly below the prior year.
- Despite strong performance, the Consumer Brands business experienced muted volume growth due to portfolio measures.
- Henkel AG & Co KGaA (HELKF) anticipates an increase in raw material prices in the second half of the year, which could impact margins.
- The company continues to face competitive pressures and increased promotional intensity in the consumer business, particularly in home care.
Q & A Highlights
Q: Your gross margin reached 50.6% in the first half, the highest ever reported. Is this sustainable, or were there temporary favorable factors?
A: Our adjusted gross margin of 50.6% was supported by strong pricing, decreasing material costs, and efficiency improvements. While we aim to maintain high gross margins, we anticipate some sequential increase in direct material costs in H2 and higher marketing investments. However, ongoing portfolio measures and savings initiatives should help sustain strong margins.
Q: You mentioned bringing forward your mid to long-term financial ambitions. Is this a signal that consensus may be too conservative?
A: We are confident in our strategy and transformation, which has shown tangible progress. While consensus may not fully reflect our midterm ambitions, we are on track to achieve them sooner than initially expected. This confidence is based on our strong performance and strategic initiatives.
Q: What is your current order book visibility in adhesives, and how is September performing compared to July and August?
A: We expect volume pickup in H2, aligned with the IPX development. Despite a decline in the light vehicle production index, we anticipate outperforming the automotive market due to our strong project wins. Electronics should continue recovering, supported by market recovery in China and new innovations. Regionally, North America and Europe are expected to improve in H2.
Q: How do you see raw materials trending in H2 versus H1?
A: We expect raw material prices in H2 to be above H1 levels, which is reflected in our guidance. Despite elevated costs, we remain confident in our margin development due to our strategic measures and efficiency gains.
Q: Can you provide more details on the EMEA growth and its operating margin compared to the rest of the group?
A: EMEA showed strong double-digit growth, driven by both Adhesive Technologies and Consumer Brands. Adhesives saw growth across all divisions, while Consumer Brands experienced volume and price growth. This region's performance reflects our strategic focus and market strength.
Q: What is the outlook for HCB volumes, and how do portfolio measures impact this?
A: We expect HCB volumes to be flat to slightly positive, excluding portfolio measures. The impact of portfolio measures will decrease towards the end of the year, with a full-year impact of around 100 to 150 basis points. We aim to complete these measures by year-end, positioning us for clearer growth in 2025.
Q: Can you comment on the increased promotional intensity in the consumer business, particularly in home care?
A: We execute promotions methodically, focusing on efficiency and brand equity. While we see increased promotional activity, our strategy emphasizes continuous marketing investments to support innovations and drive growth.
Q: Is the increased marketing expense in H2 a catch-up, or is it the new base level?
A: The increased marketing spend in H2 is partly due to supporting new innovations. While we won't provide specific guidance for 2025, our strategy includes continuous investment in marketing to drive growth and brand strength.
Q: Can you provide more details on the EMEA growth and its operating margin compared to the rest of the group?
A: EMEA showed strong double-digit growth, driven by both Adhesive Technologies and Consumer Brands. Adhesives saw growth across all divisions, while Consumer Brands experienced volume and price growth. This region's performance reflects our strategic focus and market strength.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
