BERLIN (Reuters) - Henkel (HNKG_p.DE) shares tumbled on Monday after the maker of Schwarzkopf shampoo and Persil detergent warned earnings would fall this year as it steps up investment in brands and digital technology to try to revive growth.
The stock fell more than 8 percent to a three-year low after the German consumer goods group announced plans to spend about an extra 300 million euros ($341 million) a year, on top of annual capital expenditure of around 800 million euros.
The news came as Henkel also missed analyst expectations for 2018 results, with preliminary sales up an underlying 2.4 percent to 19.9 billion euros and adjusted earnings per share (EPS) growth of 2.7 percent. Full figures are due on Feb. 21.
Henkel shares, which have fallen almost 20 percent in the last year, were down 8.8 percent at 1346 GMT.
“While there is plenty of bad news in the valuation at this level, this update does nothing to restore confidence in management, nor their command of the numbers and outlook,” said Jefferies analyst Martin Deboo.
Henkel has underperformed rivals like Procter & Gamble Co (P&G) (PG.N) and Unilever (ULVR.L) in recent years, with underlying sales in its beauty care business falling 0.7 percent in 2018 and the laundry unit growing just 1.9 percent.
Analysts said additional investment was long overdue as Henkel’s management had focused on cutting costs in recent years, but they questioned whether it would succeed, noting the company’s medium-term growth forecast remains low.
Majority owned by the family that founded it, Henkel has grown into a global company by buying up brands around the world, but it has not made major acquisitions since buying North American detergent maker Sun Products for $3.6 billion in 2016.
Finance chief Carsten Knobel said Henkel had enough cash to support all three of its main businesses with acquisitions, although analysts suggested it might not have the bandwidth for purchases due to the focus on reviving existing brands.
The company said about two-thirds of its extra annual spending would go on its brands, innovations and marketing, with the rest funding its digital transformation - an important issue for consumer goods firms as ecommerce booms.
It said the investment would mean adjusted EPS for 2019 would likely fall by about 5 percent, although it stuck to its usual goal of annual underlying sales growth of 2 to 4 percent, which it also set as a target for 2020 and beyond.
To revive growth in beauty care, Henkel plans new formulations of brands like Schauma and Gliss and will relaunch its fast-growing Got2b brand aimed at younger consumers and expand the product range for men.
As it battles P&G for market share in laundry detergent, Henkel said it planned an innovation drive for Persil, including launching a “four-chamber” pod as well as concentrated formulas to sell online and special packaging for ecommerce sales.
Henkel expects tough conditions to persist in the consumer goods market in 2019, but foresees good growth in industrial production, important for its adhesives unit, which makes glue for appliances, electronics and packaging.
The adhesives business has been outperforming the beauty and laundry units, prompting analysts to suggest Henkel should split up, spinning off the consumer goods parts.
But Chief Executive Hans van Bylen told analysts he was convinced the current structure was the right one.
Henkel also said it wanted to increase its dividend payout ratio to 30 to 40 percent of net income from fiscal year 2019 onwards from 25 to 35 percent now.
($1 = 0.8786 euros)
Additonal reporting by Matthias Inverardi, Editing by Thomas Seythal and Mark Potter