GSK gives earnings guidance a shot in the arm after strong first half

GlaxoSmithKline said strong earnings growth in the second quarter led to expect full year earnings will hit the upper end of targets, with an extra boost coming from the weakness of sterling in the first half of the year.

For the full year, GSK said it now expected core earnings per share (EPS) to grow 11-12% at constant exchange rates, top of the guidance range of 10-12% given in April, and if forex rates held as they were at the end of the second quarter, there would be an estimated 19% impact of the pound on core EPS growth.

The news sent the group's shares shooting up to three-year highs, spiking above 1,700p initially, before settling around 1,697p for a 1.8% gain on the day.

Core group revenue rose 11% to £12.76bn in the six months to end-June, up 6% at constant rates, with pharmaceuticals sales up 2%, vaccines up 11% and consumer healthcare up 7%.

Core operating profits and EPS both rose 28% at the reported level to £3.39bn and 44.3p respectively.

The momentum in core EPS growth, which jumped 16% in the quarter at constant rates to 24.5p and up 12% for the first half, led management to expect full year numbers will hit the upper end of the guidance given to investors at the first quarter.

At the statutory level, there was a total loss per share of 9p, reflecting charges for restructuring and the impact of significant sterling currency movements to the valuations of liabilities associated within the consumer healthcare and HIV businesses.

"This second quarter's performance reflects further strong execution of the group's strategy and our ability to allocate capital effectively across our three businesses to improve returns," said chief executive Andrew Witty, who earlier in the day had revealed the company would invest £275m in its UK manufacturing sites.

"Momentum across the group is being driven by growth in new product sales, continued cost control and delivery of restructuring and transaction benefits."

He also pointed to good progress in research and development, and in the second half of 2016, expect to complete key regulatory filings for Shingrix, Closed Triple, Benlysta SC and sirukumab.

The board declared a 19p dividend for the second quarter and expects to pay a full year dividend of 80p for 2016 and for 2017, as stated at May's investor day.

Analyst Joshua Mahony at IG highlighted the strong rise in key revenue and that profit figures beat expectations.

"Its results were buoyed by the drop in the pound, but a boost from new drug sales suggest the turnaround strategy of chief executive Andrew Witty is paying off."