Haleon, the British consumer health group behind Sensodyne toothpaste and cough-and-cold remedies such as Theraflu and Flonase, saw its shares slide on Thursday after investors focused on subdued sales trends despite a better-than-expected profit report.
The company posted first-half organic revenue growth of 2.6%, in line with forecasts, a rate that falls short of the 4% to 6% medium-term growth target unless performance strengthens in the second half. Investors reacted to the outlook and the mix of regional and category weaknesses, with shares down as much as 3.3% by 12:30 GMT.
Regional and category performance
Haleon said North America, its largest market, performed ahead of expectations in the quarter, helped by broader distribution and improved shelf placement. North American organic revenue growth reached 3.1% in the second quarter.
By contrast, growth across Europe was almost flat. The company also recorded a 6.5% decline in respiratory sales in the period - a steeper fall than the 3.4% contraction seen in the first quarter - a dynamic reflecting weakness in demand for cough-and-cold products amid a muted flu season across North America, Europe and China.
Profit and analyst reaction
Haleon reported first-half adjusted operating profit of 3.36 billion, topping the company-compiled poll expectation of 1.32 billion. Still, some analysts remained unconvinced that the underlying sales trajectory is strong enough. Jefferies analysts commented: "This is not quite good enough, we think," and said more robust sales growth is necessary.
Management outlook and cost pressures
Chief executive Brian McNamara told analysts the company expects a stronger second half than the first, and indicated confidence that growth will be supported by certain emerging markets and a recovery in demand for cough-and-cold products. Management highlighted actions in the United States, such as expanding distribution and improving shelf position, as contributors to the region's outperformance.
Haleon said it faces rising freight costs linked to the Iran war, which have increased operating pressure, and reported declines in markets such as Dubai where the conflict has dampened consumer sentiment. Finance chief Dawn Allen warned that costs will increase in the second half as fixed-price contracts and hedging arrangements expire.
McNamara said the company has made gross margin improvements that should enable it to absorb the cost increases without passing them on through higher prices, stating: "We have the gross margin improvement that were able to absorb those (costs) without needing to do anything around pricing to cover for it."
Currency reference: ($1 = 1.7500).
Context for investors
For investors, the report highlights a mixed set of fundamentals: a profit beat that signals effective cost control in parts of the business, set against demand weakness in key categories and regions. Management is projecting a pick-up in the second half but must translate that into stronger underlying sales to reassure markets about reaching the medium-term organic growth target.
Key takeaways
- Haleon reported first-half organic revenue growth of 2.6% and adjusted operating profit of 1.36 billion, above the 1.32 billion expectation.
- North American organic revenue grew 3.1% in Q2, while Europe was nearly flat and respiratory sales fell 6.5%.
- Management expects a stronger second half driven by emerging markets and recovery in cough-and-cold demand; cost pressures from higher freight expenses are expected but management says margin improvements can absorb them.