There is a lot of uncertainty in the world right now, but it seems as if it is business as usual for the pharmaceutical group GlaxoSmithKline (LSE: GSK). Today the FTSE 100 company reported its results for the first quarter of 2021, ahead of what is going to be a landmark year for the enterprise.
Over the next few months, GSK will spin out its consumer healthcare business, now known as Haleon. While this will result in a dividend cut for investors, the two individual corporations will be able to pursue their individual growth plans, which could produce better results for investors in the long run.
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GSK’s revenues are booming
It looks as if the business is firing on all cylinders ahead of this break up. Total revenues for the first quarter of the year jumped by 32%, with revenues of speciality medicines doubling to £3.1bn thanks to bumper sales of Xevuday, GSK's Covid-19 antibody treatment,.
Unfortunately, investors cannot count on this treatment to continue to boost Glaxo's top and bottom lines for the rest of the year. The treatment received emergency approval last year, but regulators in the US removed this label after data showed it was unlikely to be effective against the new sub-variant of the Omicron virus. Due to this factor, GlaxoSmithKline is not forecasting the treatment to provide any further contribution to earnings for the rest of the year.
Despite this setback, GSK is still projecting sales growth of between 5% to 7% for the full year, with adjusted profit growth between 12% and 14% for the pharmaceuticals and vaccines business after the spin-off.
Increasing sales of the group's shingles jab, Shingrix, are expected to contribute meaningfully. Sales doubled in the first quarter after falling back last year as vaccination programmes were delayed in the world’s battle against Covid-19. Overall, vaccine division sales increased by 36% during the first three months of the year.
These figures show that the company appears to be in a strong position as it heads toward the break-up. After two years of disruption, the global healthcare system is starting to return to some sort of normality; good news for organisations such as GlaxoSmithKline that depend heavily on annual vaccination programmes.
Haleon's sales trends are also returning to normal. The consumer healthcare market suffered significantly throughout the pandemic as common colds and viruses declined. Now it appears demand is returning. Sales increased by 14% in the first quarter across the division.
Taken in isolation, GlaxoSmithKline's first-quarter results show the company is in growth mode, but investors need to look past these numbers. The FTSE 100 group's forecasts for the rest of the year give a better idea of how management is expecting the enterprise to perform in 2022.
The pharmaceutical side will report mid-single-digit sales growth for 2022 according to these early projections. Meanwhile, Haleon is only forecasting annual organic revenue growth of 4% to 6% for the foreseeable future, a far cry from the double-digit expansion recorded between January and March.
GlaxoSmithKline is heading for a large dividend cut
There is a lot of noise in these figures, but the fact that the company is returning to growth seems to support management's projections for the rest of the year.
Over the next few months, it seems likely the market will be concentrating on GSK's breakup, and until the dust has settled, it's going to be difficult to assess the outlook for these two very different businesses.
Still, one thing is for sure and that is after the breakup GSK and Haleon will be returning less cash to investors. The group revealed it is planning to pay 27p per share in dividends for the first half, with 22p coming from the new pharmaceutical corporation and 5p from Haleon.
The FTSE 100 company is now projecting a full-year dividend of 52p per share for both groups, down from 80p last year. That is an effective dividend cut of 35%.
Rupert is the Deputy Digital Editor of MoneyWeek. He has been an active investor since leaving school and has always been fascinated by the world of business and investing.
His style has been heavily influenced by US investors Warren Buffett and Philip Carret. He is always looking for high-quality growth opportunities trading at a reasonable price, preferring cash generative businesses with strong balance sheets over blue-sky growth stocks.
Rupert was a freelance financial journalist for 10 years before moving to MoneyWeek, writing for several UK and international publications aimed at a range of readers, from the first timer to experienced high net wealth individuals and fund managers. During this time he had developed a deep understanding of the financial markets and the factors that influence them.
He has written for the Motley Fool, Gurufocus and ValueWalk among others. Rupert has also founded and managed several businesses, including New York-based hedge fund newsletter, Hidden Value Stocks, written over 20 ebooks and appeared as an expert commentator on the BBC World Service.
He has achieved the CFA UK Certificate in Investment Management, Chartered Institute for Securities & Investment Investment Advice Diploma and Chartered Institute for Securities & Investment Private Client Investment Advice & Management (PCIAM) qualification.
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