Haleon reported third-quarter revenue of £2.8bn, reflecting organic growth of 3.4% (3.2% expected). The uplift came from a fairly even mix of price and volume growth, with all regions contributing positively.
All categories except Respiratory Health and Therapeutic Skin Health were in positive territory. Oral Health grew at the fastest pace, up 6.9%, helped by market share gains for Sensodyne and parodontax.
Around £1.1bn has been returned to shareholders year-to-date, through a combination of dividends and share buybacks.
Recently downgraded full-year guidance has been reiterated, with organic revenue growth of 3.5% expected. Underlying operating profit growth is expected to land in the high-single digits.
The shares rose 1.9% in early trading.
Our view
Haleon’s third-quarter results landed a touch ahead of market expectations, driven by a better-than-expected performance in North America. With momentum across the pond set to continue over the final quarter, recently downgraded full-year guidance remains on track for now.
Haleon’s broad financial footprint means it's not overly exposed to one geography. Outside of the US, growth is still holding firm. That includes double-digit growth in India and mid-single digit growth in China, which helps validate the recent move to take full ownership of its Chinese distributor of non-prescription medicines.
For now, improving profitability provides the firepower for the company 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 dilute the bottom line benefits of ongoing efforts to improve gross margins.
Customers tend to happily stomach a higher price when it comes to medicines they trust. Sluggish volume growth suggests Haleon may not have much room to raise prices further in the current environment. 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. Successful innovations of note include the introduction of new delivery systems for painkiller Voltaren (patches) and the Otrivin decongestant (nasal mist).
Tariff risks remain something to be mindful of, but the direct risks are 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. The strong commercial focus and efforts to improve cash generation should help net debt head towards its target of 2.5 times underlying cash profit. That could open the door to higher payouts to investors or opportunistic acquisitions. But there can be no guarantees of either.
If US demand can hold up as expected, then full-year guidance looks within reach. Emerging markets are the real growth lever, and there’s a long runway ahead if Haleon can execute well here. But at 17.5 times next year’s earnings, the valuation brings a lot of pressure to deliver.
Haleon key facts
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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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