- Volumes decline in Q3
- But sales continue to grow
- Resilient Haleon reiterates 2023 guide
Consumer health colossus Haleon’s (HLN) shares slipped 2.7% lower to 322p after the Sensodyne and Panadol supplier reported a third quarter sales growth slowdown and a worse than expected volume decline.
The absence of an upgrade to full year sales and profit guidance also weighed on sentiment towards the FTSE 100 company demerged from GSK (GSK) and listed on the London exchange in the summer of 2022.
While Haleon owns a portfolio of brands built on trusted science, price rises to offset inflationary pressures appear to be forcing cash-strapped shoppers to trade down to cheaper unbranded alternatives.
TOUGHER THIRD QUARTER
Price hikes of 6.6% helped Haleon generate organic sales growth of 5% for the quarter ended 30 September 2023.
However, this represented a marked slowdown from the 10.4% seen in the first half to June, while price increases resulted in a 1.6% quarterly volume decline that spooked investors.
Factors at play included lower volumes in North America in Haleon’s ‘Digestive Health and Other’ division, driven by one-off retailer inventory adjustments and a double digit decline in sales of vitamin supplement Emergen-C across the pond as the immunity category ‘continued to revert to pre-Covid-19 levels’.
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POWER BRANDS REMAIN IN RUDE HEALTH
Encouragingly, Haleon benefited from a strong performance from its Power Brands, which delivered 9.3% organic revenue growth with oral health brands Sensodyne, Parodontax and Polident, as well as Panadol painkillers and Centrum multivitamins, proving the standout performers.
While investors were unimpressed by the absence of an upgrade to full year 2023 guidance, resilient Haleon continues to forecast healthy organic revenue growth of 7% to 8% as well as a solid 9% to 11% rise in adjusted operating profit.
WHAT DID THE CEO SAY?
CEO Brian McNamara said he was ‘pleased’ with the quarterly results, which demonstrate ‘continued strong momentum across the business. Despite challenging markets, we have delivered another quarter of strong organic growth, reflecting the strength of our category positions and the ongoing ability of our brands to grow or maintain share.’
He added: ‘Whilst we are mindful of what remains an uncertain economic and geopolitical environment, we remain confident in our medium term guidance, and remain committed to drive long term sustainable growth.’
LACKING BRAND LOYALTY?
Commenting on the results, Quilter Cheviot’s head of equity research Chris Beckett stressed that while Haleon’s sales are growing, ‘all of this is being driven by price rises, with volumes declining worse than expected. Haleon will point to a few one offs and Covid normalisation for this decline, but it speaks volumes for the consumer healthcare industry where you see some other consumer goods companies managing to pass on price rises without suffering a drop off in the number of products sold.’
Beckett noted: ‘Unlike the snacking and soft drinks market, consumer healthcare suffers from a relative lack of brand loyalty.’
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