Haleon 'on track' for full year, notwithstanding currency headwinds

Haleon reported organic revenue growth of 6.1% for the third quarter on Thursday, driven by balanced increases in both price and volume/mix at 3.3% and 2.8% respectively, though reported revenue declined by 0.6% due to currency impacts.

The FTSE 100 consumer products giant said that for the year-to-date, organic revenue was ahead 4.4%, reflecting ongoing portfolio strength across regions and categories, particularly through its ‘power brands’, with notable contributions from Sensodyne, Parodontax, Advil and Theraflu.

That performance supported Haleon’s full-year guidance of 4% to 6% organic revenue growth.

Organic operating profit for the quarter increased 7.4%, supported by gross margin expansion and cost efficiencies, which also enabled higher investment in advertising and promotional activities.

The adjusted operating profit margin expanded by 30 basis points to 23%, despite facing a 120 basis point drag from foreign exchange and a 70 basis point impact from mergers and acquisitions.

Reported operating profit for the quarter surged 20.7% to £705m, including a £121m gain from the divestment of its nicotine replacement therapy (NRT) business outside the US.

Haleon said it was still targeting high single-digit organic operating profit growth for the full year.

The firm’s capital allocation strategy resulted in around £0.8bn in funds from the sale of non-core assets, including its NRT business outside the US and ChapStick.

Haleon also reached an agreement to increase its stake in its China joint venture to 88%, with an option to acquire the remaining 12%.

Year-to-date, Haleon said it had returned over £1bn to shareholders through £500m in share buybacks and £570m in dividends.

For the rest of 2024, Haleon anticipated that recent mergers and acquisitions would dilute both revenue and adjusted operating profit by around 1.5% and 4%, respectively, while forecasting a net interest expense of £320m and an adjusted tax rate of 24% to 25%.

Haleon also warned that foreign exchange rates could negatively impact full-year revenue and adjusted operating profit by 4% and 6% to 6.5%, respectively.

Over the medium term, the company said it expected annual organic revenue growth of 4% to 6%, with profit growth outpacing revenue, aiming for a net debt-to-EBITDA ratio of around 2.5 times and dividend growth aligned with adjusted earnings.

“Third quarter trading was strong with momentum across the business underpinned by the strength of our brand portfolio driving market share gains,” said chief executive officer Brian McNamara.

“Oral Health was again a particular highlight, with organic revenue up high-single digit as Sensodyne and Parodontax continued to drive growth.

“All three regions delivered volume/mix growth during the quarter, with North America showing the improvement we expected and China up strongly.”

McNamara said the company also made “significant progress” delivering on its capital allocation priorities - completing the disposal of its NRT business outside the US, agreeing to increase its stake in the China joint venture, and completing its share buyback allocation for 2024.

“Having achieved organic revenue and organic profit growth of 4.4% and 9.7% respectively year-to-date, we are well on track to deliver our full-year 2024 guidance.”

Reporting by Josh White for Sharecast.com.