Henkel delivered strong organic sales growth of 3.9 percent in the third quarter of fiscal 2020 - despite the continued challenging economic environment as a result of the COVID-19 pandemic. Group sales totaled around 5 billion euros, corresponding to a nominal change of -1.5 percent. At the beginning of October, Henkel published preliminary figures for its sales performance in the third quarter and presented its new guidance for fiscal 2020.
"The impacts of the global coronavirus crisis continue to determine the market environment. Nevertheless, Henkel achieved a good business performance in the third quarter, with all three business units contributing. This is evidence of our robust, diversified portfolio comprised of successful brands and innovative technologies for our customers in the industrial and consumer goods businesses. Furthermore, our additional investments in marketing, innovation and digitalization are paying off. Plus, we significantly expanded our digital sales in the third quarter, increasing their total sales share to more than 15 percent," said Henkel CEO, Carsten Knobel.
"The good performance in the third quarter is also partly due to catch-up effects from the second quarter, where the negative impacts of the COVID-19 pandemic were particularly severe. But above all, it is the result of our strong global team, which in this unprecedented and challenging time for all of us, is showing enormous commitment as it continues to contribute to the long-term success of Henkel."
Henkel performed well in this challenging market environment in the third quarter. The Adhesive Technologies business unit was able to record a recovery in demand across all business areas compared to the second quarter and achieved positive organic sales growth overall compared to the same quarter of the previous year. In the Beauty Care business unit, the Hair Salon business also showed a recovery compared to the second quarter. Its organic sales development year on year was, however, slightly negative. Conversely, the retail business achieved very strong organic sales growth compared to the third quarter of 2019. With demand for laundry detergents and household cleaners remaining strong and thanks to catch-up effects from the second quarter, the Laundry & Home Care business unit was able to record significant organic sales growth, and thus continued its successful development.
"During the coronavirus crisis, we adapted flexibly and quickly to changes while continuing to vigorously pursue the agenda for purposeful growth that we introduced in March this year. With our new full-year guidance, we provided our expectations for our development over the remainder of the year. Although we assume that we will continue to feel the negative impacts of the pandemic in the fourth quarter, we do not expect to see further extensive lockdowns - such as those witnessed in the second quarter - in the core regions essential for Henkel. We are convinced that, with our strategic focus on purposeful growth, we are well positioned to emerge stronger from the crisis," Knobel added.
Outlook for the Henkel Group
Due to the effects of the COVID-19 pandemic, a strongly negative development of the global economy is expected in fiscal 2020. The new outlook is based on the assumption that, in the fourth quarter, industrial demand and business activity in areas of importance to Henkel will be below prior year but will not deteriorate significantly. The decisive factor in this context will be the further development of global infection rates and pandemic-related restrictions. In formulating its guidance, Henkel assumes that, in the core regions essential for the company, there will be no far-reaching lockdowns in the fourth quarter of 2020.
Taking these factors into account, the Henkel Group expects organic sales growth of between -1.0 and -2.0 percent in fiscal 2020.
For the Adhesive Technologies business unit, which is likely to be significantly impacted by a sharp decline in general industrial demand and, in particular, in the automotive industry, Henkel anticipates organic sales growth in the range between -5.5 and -6.5 percent. For the Beauty Care business unit, Henkel currently anticipates organic sales growth in the range between -2.0 and -3.0 percent. A significant decline in the Hair Salon business due to the pandemic will have an impact on this business unit in the full fiscal year, while growth is anticipated in the Branded Consumer Goods business. For Laundry & Home Care, Henkel expects organic sales growth in the range between +4.5 and +5.5 percent.
We expect the contribution to nominal sales growth of the Henkel Group from acquisitions in 2019 and 2020 to be in the low single-digit percentage range. The translation of sales in foreign currencies is expected to have a negative effect in the low to mid-single-digit percentage range.
At Group level, Henkel expects to achieve an adjusted return on sales (adjusted EBIT margin) in the range between 13.0 and 13.5 percent. For the Adhesive Technologies business unit, Henkel expects an adjusted EBIT margin in the range between 14.5 and 15.0 percent, for Beauty Care in the range between 10.0 and 10.5 percent and for Laundry & Home Care in the range between 15.0 and 15.5 percent. The decline in sales in the Industrial and the Hair Salon businesses due to the pandemic will have a negative impact on the adjusted EBIT margin. As announced at the beginning of the year, Henkel is also increasing investments in marketing, advertising, digitalization and IT.
Adjusted earnings per preferred share (EPS) at constant exchange rates are expected to decline in the range between -18.0 and -22.0 percent. Furthermore, we have the following expectations for 2020:
- Restructuring expenses of 250 to 300 million euros
- Cash outflows from investments in property, plant and equipment and intangible assets of between 650 and 700 million euros