Henkel Earnings: Profit Guidance Increase Driven by Consumer Business Unit

Narrow-moat Henkel increased its 2024 guidance for adjusted EBIT margin and earnings per share after substantially beating profit expectations in its preliminary first-half 2024 results. The full-year adjusted EBIT margin is now expected in the range of 13.5% to 14.5% from 13% to 14% previously, while adjusted earnings per preferred share are expected to increase by 20% to 30%, from 15% to 25% previously. The main driver of this update is the higher expected operating margin for the consumer segment, where Henkel has been reaping at an accelerated pace the cost-saving benefits of the integration of the beauty care and laundry and homecare divisions into one business unit. We are yet to see the top line benefit of the move, however, with volume still negative in the second quarter, primarily due to the ongoing portfolio optimization measures. The 2024 organic sales growth guidance was confirmed at 3% to 5% for the consumer unit, which is on track at the midpoint of the year, so far entirely driven by price.We do not expect to make a material change to our fair value estimate of EUR 86 after incorporating the higher profit guidance. At current levels, we believe the preferred share is fairly valued.