Haleon has seen underlying first quarter sales grow by 3.5% (3.2% expected) to £2.9bn. This growth was mainly driven by higher prices at 2.4%, with volume and mix also making a positive contribution.
Revenue was up in all regions and categories, with emerging markets adding 6.5%, led by a strong performance in India.
Full-year guidance has been reiterated. Organic revenue growth of 4-6% is expected, with higher growth expected in underlying operating profit.
The group is on track to complete the £500mn share buyback announced for 2025.
The shares fell 1.4% in early trading.
Our view
Haleon had a solid first quarter, with particularly strong performances in Oral Health and emerging markets. However, the reliance on pricing actions means that guidance for a step up in growth in the second half is at risk if macroeconomic conditions deteriorate further.
Efficiency gains are helping the group retain a larger slice of its revenues, with around £150mn of further cost savings expected this year.
That should support further increases in marketing spending to support its well-recognised brands. These include several household names such as Sensodyne toothpaste, Otrivin nasal spray, Panadol painkillers, and Centrum multivitamins. Continued investment in innovation and marketing is, in our view, essential to maintaining Haleon's leading brand positions. But that may also limit scope to drive margins further.
Customers tend to happily stomach a higher price when it comes to medicines they trust. We must caution that volumes could still start to dip if price hikes are taken too far, or the economic outlook deteriorates. But so far, we're impressed with Haleon's delivery of new and improved products which we view as key to growing market share and maintaining brand loyalty.
Launches of new categories, such as erectile dysfunction cream Eroxon, may drag on profitability until they gain consumer acceptance. But in time, dropping in new revenue streams to the existing portfolio should be positive for the bottom line.
Haleon’s global sales raise the prospect of a hit to financial performance if tariffs escalate. However, this is likely to be mitigated through local production in the US and limited sourcing from China.
Despite the headway being made on debt levels and shareholder distributions, the dividend is still lagging most of the peer group. A relatively strong outlook means we should see further progress towards its revised net debt to cash profit target of 2.5 times.
Offloading some of its brands is one lever the group is pulling on to get there. If attractive prices can be obtained, we’re not averse to selling a handful of non-core names. But pulling too hard on this lever could be at the expense of organic growth and margin expansion in the future.
Strengthening the balance sheet should help free up some wiggle room to bridge the dividend yield gap with its competitors. The promising start to the year adds optimism, but with relatively high earnings multiples, the market expects successful growth execution, leaving little room for disappointment if second-half acceleration fails to materialise.
Haleon key facts
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