Henkel battles to keep on trucking in North America

[March 19, 2018]   By Emma Thomasson

FRANKFURT/BERLIN (Reuters) - Henkel's <HNKG_p.DE> laundry and beauty care sales will be hit by delivery failings in North America after problems with its logistics systems were exacerbated by U.S. trucking shortages.

Shares in the German consumer goods maker of Persil detergent and Loctite adhesives have underperformed the German blue-chip index <.GDAX> over the past year and were down 3.2 percent on the day at 1142 GMT.

Henkel has hit problems as it tried to improve its logistics system in North America, with workflow issues only emerging when it was operating at full capacity, a spokesman said.

Shortfalls in U.S. freight capacities made the situation worse, resulting in disruptions across Henkel's supply chain, including production planning, order processing, production, storage and transport to customers, he added.

In another case of a consumer company struggling to eke out efficiencies in its supply chain, KFC <YUM.N>, had closed hundreds of its British fried food outlets last month due to a chicken shortage after it switched its delivery contract to DHL, a unit of Deutsche Post <DPWGn.DE>.

U.S. food companies have cited rising freight costs as a reason for lower profit margins, with more pain seen in 2018 as a dearth of drivers and higher diesel prices make it even more expensive to transport products to stores.

"You have your own system not working properly ... and then at the same time you have tightness in the market," said Liberum analyst Anubhav Malhotra. "It was probably efficiency-boosting but it didn’t go according to plan."

Part of the problem is drivers dumping long-haul jobs in favor of shorter trips for the likes of Deliveroo or Amazon, Malhotra said.

A logo of consumer goods group Henkel is pictured before its annual news conference in Duesseldorf March 8, 2012. REUTERS/Ina Fassbender/File Photo

After launching Persil in the United States in 2015, Henkel has been in a price war with Procter & Gamble <PG.N> and faces strong competition in its beauty business. It makes about a quarter of its sales in North America.

The logistics changes for the consumer goods businesses in North America is separate from Henkel's project to introduce a single global supply chain, that the spokesman said was progressing as planned.

Chief Executive Hans Van Bylen said the company expected to return to usual service levels during the second quarter.

The adhesives unit, which generates about half of the company's sales, and the professional haircare business were not affected and showed very good development, Henkel said.

Henkel expects a decline in organic sales for its laundry and beauty units in the first quarter, while overall organic sales growth should be "slightly positive".

It confirmed its 2018 outlook, with organic sales growth between 2 and 4 percent and adjusted earnings per share to rise between 5 and 8 percent. It is due to publish first-quarter results on May 9.

(Additional reporting by Tom Sims and by Martinne Geller in London; Editing by Robin Pomeroy)

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