UPDATE 2-Henkel steps ups cost cuts as slowdown bites

Wed Nov 9, 2011 5:31am EST

* Q3 sales 4.03 billion euros, vs poll 4.07 bln

* Q3 adj operating profit 541 mln euros, vs poll 555 mln

* Now sees 2011 sales up 5-6 pct, vs previous forecast 5 pct

* "Very confident" of hitting 2012 margin target of 14 pct

* Shares drop 5.5 pct, biggest Dax faller

By Victoria Bryan

FRANKFURT, Nov 9 (Reuters) - German consumer goods group Henkel is stepping up cost cuts to battle an expected global slowdown and protect profit margins as it reported third-quarter profits that slightly missed market expectations.

A slowdown at its highly profitable adhesives division and concerns its 2012 financial targets are too ambitious given expected difficult economic conditions overshadowed an increased 2011 outlook for sales growth on Wednesday.

"We're characterising this as a solid quarter, not a great quarter, because we're not happy with the gross margin," Chief Executive Kasper Rorstedt told analysts after results.

Henkel, the maker of Schwarzkopf hair products, Persil detergent in most of Europe and Pritt glues, said its gross margin fell 1.3 percentage points to 45.7 percent due to higher raw material costs.

"We saw a negative effect from slower growth in the electronic adhesives division, which usually generates higher margins than other parts of business," Chief Financial Officer Lothar Steinebach said.

He added that the electronics sector seemed to be sitting on significant inventory so did not expect improvements there any time soon.

Shares in Henkel, which also makes Right Guard antiperspirants and shower gels, were down 5.5 percent at 41.18 euros at 1030 GMT, the top faller on the blue chip Dax index. .

Rorsted said the accelerated restructuring programme meant the group was confident of reaching an adjusted EBIT margin -- earnings before interest and tax as a percentage of sales -- of 13 percent in 2011 and 14 percent in 2012.

Analysts in a Reuters poll on average see the 2012 EBIT margin at 13.7 percent.

"We believe there to be a considerable risk that Henkel could fall short of the company targets for 2012 as a result of a slowdown in global economy," DZ Bank analyst Thomas Maul said.

Anglo-Dutch rival Unilever , which makes Lipton, Knorr and Dove products, last week cautioned rising commodity costs and poor consumer confidence would hit its margins in 2011.

Henkel's Rorsted said the euro zone crisis was not yet having a direct impact on the group, but that it was feeling the increased uncertainty.

The group nudged up its forecast for underlying sales growth to 5-6 percent for 2011, compared with a previous target of 5 percent, and forecast growth of 3-5 percent next year.

"We think it will probably be nearer 6 percent than 5 percent," Rorsted said.

Henkel said its laundry and home care business grew underlying sales by 3.8 percent in the quarter, which it said was entirely due to price increases.

Henkel reported third-quarter sales of 4.03 billion euros ($5.6 billion) and adjusted operating profit of 541 million, compared with forecasts for 4.07 billion and 555 million, respectively, in a Reuters poll.

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