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Henkel Q2 profit up 10.3% on sales growth in laundry segment

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Henkel Q2 profit up 10.3% on sales growth in laundry segment

German chemical and consumer goods giant Henkel AG & Co. KGaA reported a year-over-year rise in second-quarter profit driven primarily by double-digit sales growth in its laundry and home care segment.

The company, which owns brands including Persil laundry detergent and Schwarzkopf shampoo, posted net profit of €631 million for the three months ended June 30, up 10.3% year over year from €572 million. Earnings per preferred share increased 10.8% to €1.44 from €1.30 a year ago. The S&P Capital IQ consensus GAAP EPS estimate for the second quarter was €1.42.

Sales grew 9.6% to €5.10 billion from €4.65 billion in the year-ago period, reaching a new "all-time high," the company said. The net effect of acquisitions and divestments contributed about 7.4% of the sales growth, while organic sales growth showed a 2.2% increase.

Across its major business lines, the laundry and home care segment recorded the biggest year-over-year increase of 26.6%, with sales growing to €1.70 billion from €1.35 billion.

Almost all the growth came from the acquisition of U.S. laundry detergent company Sun Products, the integration of which is "well on track," Henkel CFO Carsten Knobel said during an Aug. 10 conference call.

Meanwhile, the adhesives sector, which includes brands like Loctite, posted 3.5% growth in second-quarter sales to €2.37 billion from €2.29 billion in the year-ago period.

The recently closed acquisitions of Darex Packaging Technologies and Sonderhoff Group will add around €300 million in sales annually and further strengthen Henkel's adhesives business, CEO Hans Van Bylen said on the call.

However, increasing raw-material costs related to the adhesive technologies unit drove the company's adjusted gross margin down to 47.6% compared with 49.1% in the second quarter of 2016.

"The impact of the rising raw-material prices are in line with our expectations, and we reiterate at this point in time our expectations for a moderate increase of our raw-material prices for the full year," Knobel said.

Another major business line for Henkel, beauty care, saw sales for the quarter edge up 0.9% to €997 million year over year from €988 million, as the segment faced challenges in certain markets.

"In Europe, we saw ongoing market decline in our core categories due to the accelerating price and promotion pressure. In China, our growth was impacted by the ongoing channel shift from brick-and-mortar to online," Van Bylen said.

Across different regions, Henkel recorded "very strong" sales growth in Eastern Europe for the quarter, driven by a double-digit improvement in Turkey, according to Van Bylen. Russia, North America, Latin America and Asia-Pacific also posted good growth.

"In Africa and the Middle East, we posted a positive organic sales growth of 1.1% despite an ongoing difficult market environment," the CEO added.

Henkel's second-quarter operating profit improved 10.8% to €839 million from €757 million in the year-ago period.

For the first six months combined, the group saw net profit grow 11.5% to €1.24 billion from €1.11 billion a year ago, while first-half sales increased 11.5% to €10.16 billion from €9.11 billion.

Henkel also confirmed its guidance for fiscal 2017, expecting organic sales growth of 2% to 4% and an increase in adjusted earnings per preferred share of between 7% and 9%.