Glaxo comes up short as European concerns continue

Pharmaceuticals giant Glaxo's third quarter figures came in short of expectations on most fronts, while full year sales are now expected to be little changed from 2011.

Pharmaceuticals giant Glaxo's third quarter figures came in short of expectations on most fronts, while full year sales are now expected to be little changed from 2011.

Against expectations of earnings per share (EPS) of 28.7p, GlaxoSmithKline delivered 26.5p, down 13% year-on-year or down 11% on a constant exchange rates (CER) basis.

The dividend was also skimpy, at 18p, versus expectations of 18.5p, though it was an improvement on last year's third quarter pay-out of 17p.

Turnover in the three months to the end of September tumbled 8% (CER: 5%) to £6,527m, falling short of the £6,758m expected by the market. The group grumbled that it was going up against tough comparatives from a year ago and was not helped by continued weakness in European markets.

Sales in Europe were down 9%, while in the US the increasing encroachment of companies providing generic versions of Glaxo's more expensive money-spinners, plus the discontinuation of certain products, contributed to a 6% decline in the top line: stripping out these factors, US sales rose 2% from a year earlier.

"Excluding the prior year comparisons, related to sales of Cervarix in Japan and US flu vaccines (3 percentage points), and product disposals of OTC [over the counter] brands and Vesicare (2 percentage points), sales for the quarter were broadly in line with last year," revealed Chief Executive Officer Sir Andrew Whitty.

The group is expecting fourth quarter sales to pick up, but full year sales are now expected to be flat year-on-year on a CER basis, and that is assuming there is no further deterioration in Europe.

"It is clear that the European market is facing a prolonged period of significant economic pressure. In this context we are reviewing our current business and assessing how best to respond to this environment and meet the increasingly diverse needs of European governments," Whitty revealed.

Core operating profit also came up short, at £1,970m, versus expectations of £2,257m. Core operating profit was down 15% year-on-year and 13% lower on a CER basis.

Adjusting for legal settlements, net cash inflow from operating activities was £1.8bn during the quarter. Some £1.9bn of shares have been repurchased in the year to date and the group still expects total share repurchases this year to be £2bn - £2.5bn.

"In conclusion, our focus is to continue to deliver on our strategy to maximise growth opportunities and actively prepare for the roll-out of multiple new products. We remain confident that these new products, combined with our strengthened businesses in emerging markets and consumer healthcare and further execution of our financial strategy, provide GlaxoSmithKline with clear opportunities to deliver sustained improvement in long-term financial performance and overall returns to shareholders," Whitty said.

The shares, which had been moderately firmer ahead of the results, slipped back to 1,406p, down 14p on the day, shortly after the figures were released.

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