GSK quarterly earnings fall 48%
GlaxoSmithKline reported underlying sales growth across all three businesses in the first quarter but earnings down almost half as it takes full control of its consumer healthcare joint venture.
With a strong currency headwind hitting sales and profits, adjusted earnings per share of 24.6p in the quarter were down 2% on the same period last year but up 11% if forex swings are ignored.
Total EPS of 11.2p tumbled 48% or 33% at constant exchange rates reflecting the revaluation of consumer healthcare business following agreement for the $13bn acquisition of the other half it did not own of the consumer health joint venture with Novartis.
Free cash flow in the quarter of £324m was down 50% after a £317m vaccine sales milestone was paid to Novartis. A 19p dividend was declared for the quarter, with directors still expecting to pay out a total of 80p for the full year.
Chief executive Emma Walmsley said full ownership of the consumer healthcare business, which was chosen over pursuing Pfizer's similar business, was one of her key capital allocation priorities. "This will help improve future cash generation and support capital planning for the group's main priority to strengthen the pharmaceuticals business and R&D pipeline."
She also pointed to encouraging starts for the most recent new product launches, Shingrix, Trelegy and Juluca.
Total revenues of £7.2bn for the quarter were down 2% on last year but at actual exchange rates but up 4% if they are excluded. Pharmaceuticals sales came out bang on £4.0bn, up 2% at constant exchange rates as respiratory sales were flat amid tougher competition even without the introduction of a substitutable generic rival to Advair.
Vaccine revenues up 13% to £1.2bn, primarily driven by sales of the new Shingrix shingles treatment, and consumer healthcare up 2% to £2bn as growth in oral health offset flat 'wellness' sales.
If exchange rates were to hold at the closing rates on 31 March for the rest of 2018, GSK estimated the negative impact on full-year sterling turnover growth would be around 5% and if exchange gains or losses were recognised at the same level as in 2017, the estimated negative impact on 2018 EPS growth would be around 8%.
Guidance for full year EPS remained for growth of 4-7% at CER if no generic substitute is released to rival its Advair asthma treatment, as new launches offset greater competition in the US inhaled respiratory market in the quarter. If an Advair rival is introduced mid-year US, the group expects adjusted EPS between flat and down-3%.
Shares in GSK fell 4% to below 1,400p, undoing all the gains made so far this month, after the release of the results on Wednesday afternoon London time.
Charlie Huggins, manager of the HL Select UK Income Shares fund, which holds a position in GlaxoSmithKline, said results were "broadly as expected", though the main "weak spot" continues to be the US respiratory business.
He said the consumer healthcare deal was much more digestible than the Pfizer alternative and "demonstrates good capital discipline from CEO Emma Walmsley".
"The key priority now is extending this capital allocation focus to the R&D pipeline. Already, a number of changes have been effected, with new management brought in, including the highly regarded Luke Miels as President of Global Pharmaceuticals, tasked with creating a more efficient and commercially-focused enterprise.
"These measures are not going to transform the group’s prospects overnight and it will take time before their success can be judged."