Germany-based Henkel AG & Co. (HENKY, Financial)(XTER:HEN, Financial) is a global leader in soap, adhesives and beauty care. The company has consistently grown sales and earnings. It is a holding of the Tweedy Browne (Trades, Portfolio) Global Value Fund.
The company has 438 million shares, the stock trades for 122.50 euros ($130.70) and the market cap is 53.7 billion euros. The dividend is 1.62 euros and the dividend yield is 1.3%. Earnings per share were 5.53 euros and the price-earnings ratio is 22.15. Not a bad valuation.
Revenues were 18.7 billion euros in 2016, up from 16.4 billion euros in 2016. Free cash flow was 2.293 billion euros and the free cash flow yield is 4.27%. Free cash flow has been about at this level for the last few years. Its Ebit margin was 16.9% last year.
The balance sheet is very strong with 1.486 billion euros in cash and 4.4 billion euros in receivables. This is to 3.67 billion euros in payables and 3.4 billion euros in debt. Its debt is A rated by S&P.
Sales are broken down into three segments: 48% adhesive, 20% beauty and 31% laundry. Henkel’s best known adhesive in the U.S. is Loctite. Its beauty care division operates under the name Schwarzkopf and is better known in Europe. Laundry is sold under the brand names Persil, Purex and Pril. The best-known brands in the U.S. are Dial soap and All. Sales by region are broken down: 20% North America, 34% Western Europe, 43% emerging markets, 2% Australia, New Zealand and Japan and 1% corporate.
Some of Henkel’s larger customers include: Wal-Mart (WMT, Financial), Lidl, Tesco (TESO, Financial) and Carrefour (XPAR:CA, Financial). Lidl is coming into the U.S. and should do well. A search on Amazon shows hundreds of pages of the company’s products. It has a goal of improving sales 2% to 4% a year and 7% to 9% by 2020.
The adhesives are also used in manufacturing and electronics. Of its total sales, 21% comes from automotive, transport and aerospace. Brand names include Bonderite, Technomelt and Teroson. Fourteen percent of total corporate sales are derived from manufacturing and repair. Eleven percent comes from electronic assembly. There are so many different types of Loctite that I found on Amazon. Applications for automotive can be varied depending upon whether the part is made of copper, plastic or is oily. There is a $35 kit to put on a rearview mirror. There is page after page of lubricants and gasket sealants. I could see a slowdown in manufacturing as the Achilles heel of Henkel.
In March, Henkel purchased Nattura Laboratorios SA de CV, which is based in Guadalajara, Mexico. Nattura is prominent in the U.S., Mexico and parts of Latin America. In February, the company purchased Darex Packaging for $1.05 billion. Darex produces over $300 million a year in revenues. The company manufactures can sealants and can coatings.
The shareholding is broken down into 178.2 million preferred shares and 259.8 million ordinary shares. The preferreds do not get to vote at the annual meeting, but get an additional 0.02 euros a share when dividends are paid. The Henkel family owns 61.02% of the ordinary shares. I doubt if the family will sell.
Henkel has been around since 1878. The company has been in adhesives since 1922. It survived two world wars in Germany. Sales and earnings have done well over the last few years. The company is profitable and spends a lot on research and development. There is not really anything negative to say about the company. It is extremely strong in emerging markets. Its debt is A rated by S&P. The stock does not get the press Proctor & Gamble (PG, Financial) receives, but should. It is certainly a buy at the right price.
Disclosure: We do not own shares.
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