- Consumer health colossus reports strong start to 2023
- Margins squeezed by cost inflation
- Confident of full year 2023 guidance
Consumer health giant Haleon (HLN) reported a strong start to the year with organic revenue up 9.9% in the first quarter to March 2023, with volume growth positive at 2.8% despite the FTSE 100 company hiking prices by 7.1%.
However, shares in the supplier of trusted headache tablet and toothpaste brands such as Panadol, Sensodyne and Advil fell 3.9% to 339.1p as quarterly profits came in below analyst expectations amid a squeeze on margins.
EARNINGS MISS
While adjusted operating profit rose 9.5% to £691 million on revenue up 13.7% to the best part of £3 billion, Haleon suffered a 90 basis point drop in its adjusted operating profit margin to 23.1% due to cost inflation and ‘incremental standalone costs’ and adjusted earnings per share (EPS) came in at 4.2p, below the 5.24p analysts were looking for.
Reassuringly however, the firm maintained its previous guidance for full year 2023 organic revenue growth ‘towards the upper end of the 4% to 6% range’.
Spun out from drugs giant GSK (GSK) and listed on the London and New York stock exchanges last summer, Haleon enjoyed growth across all categories save for vitamins, minerals and supplements which declined as Emergen-C lapped strong comparatives in the US.
The respiratory health division delivered organic growth of 33% due to a continued ‘strong’ cold and flu season and growth in China following the end of lockdowns.
Elsewhere in the portfolio, oral health brand Sensodyne grew strongly in North America and the Middle East and Africa while pain relief brands Advil and Voltaren also delivered robust growth.
WHAT DID THE CEO SAY?
CEO Brian McNamara said: ‘The new year has started well, and I am particularly pleased that we delivered a healthy balance of positive volume mix and price in the first quarter; demonstrating the strength of the brand portfolio combined with exceptional execution across our markets.’
McNamara added: ‘Our strategy is delivering strong growth and our Q1 performance reinforces my confidence in our ability to deliver. Strong innovation and a continued focus on cost discipline underpins this confidence. As we shared at the AGM, for FY23 we expect to deliver towards the upper end of the 4% to 6% organic revenue growth guidance range.’
THE EXPERT’S VIEW
AJ Bell investment director Russ Mould commented: ‘Only someone who had spent the last 18 months living in a cave would be unaware of the inflationary pressures facing all businesses. However, the drop in Haleon’s profitability suggests it has struggled to pass increased prices on to consumers. Or it has made the decision to preserve volumes over protecting its margins.’
Mould continued: ‘There is no right or wrong answer to this conundrum, but it may see investors reappraise the business and suggests the competitive threat posed by own-brand alternatives is a real one.
‘Another issue weighing on the shares is news Pfizer will start selling down its 32% stake within months. While the US drugmaker says it will do this in a slow and strategic way, it represents a pretty big overhang for Haleon.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Ian Conway) own shares in AJ Bell.
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