Henkel, the German consumer goods giant behind iconic brands like Persil, Schwarzkopf, and Loctite, recently released their first-quarter earnings. While the results appeared solid at first glance, a closer look at the transcript reveals a subtle shift in volume dynamics that analysts seem to have overlooked. This shift could be the spark that ignites Henkel's future growth.

Like many consumer goods companies, Henkel has been navigating the challenges of pricing power in an inflationary environment. While price increases have helped protect margins, they have inevitably led to a decrease in volumes. However, a seemingly offhand remark by Henkel's management in the Q1 transcript suggests that a volume turnaround may be underway.

The key takeaway: Consumer Brands volumes would have been positive in Q1 if not for the ongoing portfolio adjustments. This means that the headline volume decline of -2% masks underlying growth in core products. Henkel is not merely stemming the tide of volume erosion, but potentially witnessing a resurgence in consumer demand, even with persistently high prices.

""Volumes again improved sequentially versus Q4 2023. In Adhesives, volume development remained in positive territory despite an overall demanding environment. In our Consumer business, we also reached positive levels when considering the impact from portfolio measures, which accounted for roughly 2% points and which reflects the fact that the impact from these measures will be more front-end loaded." - Carsten Knobel, CEO of Henkel, from the Q1 2024 Earnings Call Transcript."

The impact of these portfolio adjustments is expected to fade throughout 2024, becoming negligible by the year's end. If underlying volume growth continues, we could see a significant positive shift in reported volumes in the latter half of 2024.

Projected Volume Growth for Henkel Consumer Brands (Hypothetical)

The following chart illustrates a potential scenario for Henkel's Consumer Brands volume growth, assuming the negative impact from portfolio measures fades linearly throughout the year and underlying volume growth is positive.

Henkel's strategic focus on shedding underperforming products and investing in high-growth, high-margin offerings is creating a more resilient business model. Coupled with substantial investments in R&D, innovation, and marketing, Henkel is aiming to reinforce brand equity, boost consumer awareness, and drive future demand.

""We also continued with investments in marketing and R&D on elevated levels fueling strong growth of innovations and core brands or four core brands, such as Persil, Perwoll, Priel, Schwarzkopf and the American brand, all." - Carsten Knobel, CEO of Henkel, from the Q1 2024 Earnings Call Transcript"

While macroeconomic uncertainties remain, Henkel's subtle volume growth signal in Q1, combined with its strategic investments in innovation and marketing, paints a compelling picture of a company poised to outperform. The quiet volume revolution may have just begun, and those who ignore it could be left behind.

"Fun Fact: Did you know that Henkel's Loctite brand played a critical role in the Apollo 11 mission? Loctite adhesives were used to secure vital components of the lunar module, helping to ensure the success of humanity's first steps on the moon."