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Henkel Drops as Outlook Dims on Auto Slump, Slower China Sales

Henkel Cuts 2019 Guidance as Quarterly Profit Misses Estimates

(Bloomberg) --

Henkel AG dropped the most in almost seven months after cutting its full-year forecast as a sales slowdown in China hit its Schwarzkopf shampoo business and its adhesives unit suffered from an automotive slump.

Earnings before interest and taxes missed analysts’ predictions in the second quarter, prompting Henkel to warn sales growth could be flat and per-share profit would drop almost 10%, more than previously expected. The stock traded as much as 5.4% lower, its steepest intraday decline since Jan. 21.

Henkel is battling a slump in the auto industry. It’s seen an abrupt halt to a key growth market that had benefited as carmakers turned to adhesives to reduce weight by gluing parts together rather than riveting or welding. Sales at the unit shrank by 1.2% in the quarter, with Henkel highlighting a decline in automotive demand, alongside stiffer competition in beauty and washing-detergent markets.

Chief Executive Officer Hans Van Bylen earlier this year allocated an extra 300 million euros ($335 million) for marketing spending amid a price war in parts of Europe and North America in products. Beauty Care was “significantly below” expectations, partly due to “ongoing stock adjustments” in China.

The weakness in those markets has come to define Van Bylen’s term, and will be a focus for him as he eyes the end of his contract in 2021. Upon becoming CEO in 2016, he focused on growing Henkel through large purchases including U.S. detergent maker Sun Products Corp., a purchase aimed at Procter & Gamble Co.’s home market.

Preferred shares of Henkel, the No. 1 supplier of adhesives, traded 4.2% lower at 88.08 euros as of 9:07 a.m.

What Bloomberg Intelligence Says

“Henkel will have to spend wisely on brand building to restore its long-term organic-growth target of 2-4%, and the latest guidance cut demonstrates that the 300 million euros of investment planned for both 2019 and 2020 probably won’t be enough.”

--Duncan Fox, consumer-products industry analyst

Adjusted earnings fell 9% to 846 million euros. Analysts had predicted 869 million euros on average, according to data compiled by Bloomberg. Henkel reiterated guidance for an EBIT margin of between 16% and 17%.

To contact the reporter on this story: Oliver Sachgau in Munich at osachgau@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Andrew Noël

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