GlaxoSmithKline turnaround takes hold with a better-than-expected rise in first quarter sales and profits, share price jumps

 
Billy Bambrough
Follow Billy
GlaxoSmithKline Reports First Quarter Profits
GSK boss Sir Andrew Witty will step down in March next year (Source: Getty)

GlaxoSmithKline has reported sales rose to £6.23bn, up 11 per cent, in the first quarter on last year, generating core earnings per share (EPS) of 19.8 pence.

The UK pharmaceuticals group is in the midst of a turnaround and the latest results may go someway to proving outgoing chief executive Andrew Witty's plan could work out.

Witty is keen for the company to split its focus between consumer health and new drugs, though some activist investors have claimed it's an inefficient way to run the drug giant and it should be broken up.

Read more: Break-up a bitter pill for Witty

This will be Witty's final year in charge of the company. He announced he will step down next March after nine years at the the helm. The new choice of CEO is expected to signal the direction of the company, though analysts expect his successor may not be chosen before the autumn.

New product sales have almost managed to offset declining revenues from the loss of patent in the US and Europe for moneyspinner lung treatment Advair.

Shares in the company climbed by almost two per cent by mid afternoon trading in London.

GlaxoSmithKline GlaxoSmithKline | mobile image

Analysts, on average, had forecast sales of £6.01bn and core EPS, which excludes certain items, of 17.9p, according to a poll by Thomson Reuters.

Profit for the three months to 31 March was £282m however, a fraction of the £8.1bn reported a year earlier. Core net income, stripping out one-time gains and impairments, rose by 15 per cent to £959m.

GSK received a boost from currency tailwinds as the pound weakened against the dollar, though even stripped out sales were up by eight per cent.

Read more: How Brexit would affect the UK's pharma industry

Improving margins in consumer health and growing demand for new drugs lifted GSK's underlying earnings.

Vaccines were up 14 per cent at £882m, against forecasts for £792m, while total pharma sales rose five per cent to £3.6bn, in line with expectations.

Consumer healthcare was up four per cent at £1.8bn, beating the consensus target for £1.66bn.

Ed Bowsher, Share Radio senior analyst, said:

“GSK’s biggest current challenge is to bring new drugs to the market to replace the blockbuster drug, Advair, which is no longer protected by patents in the US. Today’s results show that GSK is having some success with this - 20 per cent of GSK’s total pharma sales now coming from recently-launched drugs, which is great to see.

GKS has promised investors it will improve profitability in its non-prescription business, which was recently expanded through a $20bn asset swap with Novartis.

GSK confirmed that the dividend would be held at a yield of nearly 6 per cent through 2017.

Bowsher added:

“And best of all, the dividend looks safer today than it did yesterday. GSK said today that it planned to maintain its dividend at 80p for both this year and next, and rising profits reduce the chance of GSK going back on that commitment.

Related articles