Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Haleon PLC (HLN, Financial) reported strong organic sales growth, particularly in the Oral Health and VMS segments.
- The company successfully managed inventory reductions and proactively addressed potential FDA decisions, ensuring product availability for the cold and flu season.
- Haleon PLC (HLN) has shown significant market share gains in North America, despite challenging trading conditions.
- The company has maintained a strong cash flow, enabling a share buyback program and reducing net debt-to-EBITDA to below 2.9 times.
- Haleon PLC (HLN) is actively managing its portfolio, including successful divestments and potential bolt-on M&A opportunities to enhance shareholder value.
Negative Points
- North American sales were down slightly in the first half, impacted by inventory reductions and proactive measures related to phenylephrine products.
- The company's profit guidance for the second half is expected to be lower due to phasing of cost inflation, increased A&P spending, and higher R&D expenses.
- The US segment experienced a decline in margin, attributed to volume declines and increased A&P investments.
- The China JV extension indicates ongoing complex negotiations, which could imply potential challenges in finalizing agreements.
- The company's gross margin expansion is partially driven by easing inflation and productivity gains, but benefits from site closures like Maidenhead have not yet materialized.
Q & A Highlights
Q: Can you discuss the trading conditions in North America and the discrepancy between sell-in and sell-out?
A: Brian McNamara, CEO: In North America, we saw a slight decline in the first half but a 1% growth in Q2. Inventory reductions in Q1 and proactive inventory management of phenylephrine products impacted volume and growth. Consumption remains strong, and we expect net sales growth in the back half of the year.
Q: What is your outlook for organic sales growth in the second half?
A: Tobias Hestler, CFO: Our guidance implies a 5% to 9% growth in the second half, leaning towards the upper end of the 4% to 6% range. We expect continued strong performance in Oral Health and VMS, with pain relief and respiratory categories also contributing positively.
Q: How are you responding to the competitive environment and promotional intensity in North America?
A: Brian McNamara, CEO: We operate in a less promotionally sensitive business. Our strategy focuses on lower promotions and higher investments in advertising and dental detailing. We haven't observed any significant changes in promotional intensity in our categories.
Q: Can you clarify the impact of the Phenylephrine inventory reduction and its expected reversal?
A: Tobias Hestler, CFO: The Phenylephrine inventory reduction had about a half-point impact on the group and a two-point impact on the US. This is expected to reverse in Q3, contributing positively to our volume growth.
Q: What are your plans for A&P spending in the second half, and how will it impact margins?
A: Tobias Hestler, CFO: A&P spending will increase in H2, driven by the launch of Eroxon and continued investment in our brands. We also expect higher R&D spending and some non-recurring benefits from last year not repeating. Despite these factors, we remain confident in our full-year guidance.
Q: What is the status of the China JV extension, and should we be concerned about any issues?
A: Tobias Hestler, CFO: The nine-month extension is more of a technicality to allow for ongoing discussions. The relationship with our partners is positive, and all parties are aligned on the value of the joint venture. We will update once we have more information.
Q: Can you provide more details on the strong growth of Centrum and its drivers?
A: Brian McNamara, CEO: Centrum's growth is driven by new market launches and strong uptake from the COSMOS study, which showed significant cognitive benefits from Centrum Silver. This scientific backing has boosted consumer interest and sales.
Q: How do you view the market for bolt-on M&A, and are there any plans for further disposals?
A: Brian McNamara, CEO: We are actively looking at bolt-on M&A opportunities that make strategic sense and create value. We will continue to manage our portfolio proactively, as seen with recent divestments.
Q: What are your expectations for pricing trends for the rest of the year?
A: Tobias Hestler, CFO: Pricing is expected to remain stable for the rest of the year, with the step-down in Q2 primarily due to the rollover of pricing negotiations in EMEA and LatAm. The US market may see some variability, but overall, we expect stability.
Q: Can you discuss the factors contributing to the strong gross margin expansion in H1?
A: Tobias Hestler, CFO: The 150 bps gross margin expansion is due to easing inflation, improved efficiencies, and lower freight costs. The benefits from the Maidenhead closure are not yet reflected but will contribute positively in the future.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
