GlaxoSmithKline Posts Healthy Profit With Earnings Rise -- 2nd Update
April 27 2016 - 11:04AM
Dow Jones News
By Denise Roland
LONDON-- GlaxoSmithKline PLC said core earnings rose in the
first quarter of the year, in an early sign the company is
returning to growth after two years of falling profits.
The British drugs giant's transition to a lower-margin business
following a $20 billion asset swap with Novartis AG, combined with
falling sales of blockbuster respiratory drug Advair, have taken a
toll on the company's earnings growth recently.
But now that Glaxo's integration of the businesses it acquired
from Novartis is well under way, its prospects are brightening.
Core earnings per share (EPS), a measure which strips out one-time
gains or impairments, climbed 14% to 19.8 pence in the three months
ending March 31, while revenue rose 11% to GBP6.2 billion ($9.04
billion), up from GBP5.6 billion a year ago. Stripping out exchange
rate movements, revenue and core EPS both increased 8%.
Last year, Glaxo completed a major transaction with Novartis in
which it traded its portfolio of high-margin cancer drugs for the
Swiss company's lower-margin vaccines franchise, and took control
of a joint venture pooling the companies' consumer health care
arms, which sell low-margin drugstore staples from over-the-counter
remedies to toothpaste.
That deal was devised to reduce Glaxo's exposure to the
risk-laden drug development part of the business, which succeeds or
fails on the outcomes of lengthy and expensive clinical trials,
patent life cycles and the willingness of governments and health
insurers to spent ever-tighter budgets on medicines. Vaccines and
consumer health care products are cheaper to develop and are
considered more stable businesses.
Chief Executive Andrew Witty has promised Glaxo will bear the
first fruits of that transaction this year. He told investors to
expect a 10% to 12% percentage increase in core EPS in 2016, at
constant exchange rates, as he reported the company's first quarter
results on Wednesday. That would be the first increase in core EPS
since 2013.
He said the improved profitability in the first quarter
reflected stronger top-line growth, in part thanks to the promotion
of "power brands" in the consumer health care division. Combining
its consumer health care division with Novartis's has enabled Glaxo
to pick winners while leaving behind brands that don't make the cut
in an expanded portfolio, he said.
Mr. Witty added that the improved margins also reflected work
that predated the Novartis transaction, such as investments into
more efficient manufacturing and a new IT platform.
Those moves were reflected in a strong performance from the
consumer health care division, which posted a 26% increase in
revenue to GBP1.8 billion in the first quarter while core operating
profit increased 59% to GBP303 million.
The expanded vaccines division also delivered strong earnings
growth thanks to the integration of the Novartis business and
strong sales growth of two newly-launched meningitis vaccines. Core
operating profit increased 56% to GBP253 million, on a revenue
increase of 23% to GBP882 million.
In Glaxo's drug development arm, still the largest part of the
business, revenue fell 1% to GBP3.6 billion. That was partly
because the year-earlier quarter included one month of sales from
the now-divested cancer franchise. Stripping that out, sales
increased 5% as revenue from newly launched drugs in HIV and
respiratory medicine more than offset that lost from Advair. Core
operating profit for that division increased 8% to GBP1.2 billion,
largely thanks to those new drugs, which can command higher margins
than Glaxo's aging blockbusters.
The company also provided more clarity on its 2016 outlook,
saying it expected core EPS to grow 10-12% at constant exchange
rates. Previously, it had guided for a double-digit increase. The
company also confirmed plans to pay a full-year dividend of 80
pence.
Write to Denise Roland at Denise.Roland@wsj.com
(END) Dow Jones Newswires
April 27, 2016 10:49 ET (14:49 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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