GlaxoSmithKline – Sales Tick Up And GSK Finally Enters The Covid Fray, But Still A Mixed Bag

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GlaxoSmithKline (LON:GSK) reported second quarter sales of £8.1bn, up 15% at constant exchange rates (CER). That reflects particularly strong growth in Pharmaceuticals and Vaccines businesses.

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Underlying operating profits rose 43% to £2.2bn as the group benefited from a weaker comparator, due to de-stocking in both pharmaceuticals and consumer healthcare in the same period last year, and ongoing cost savings.

The group announced a dividend of 19p per share for the quarter and continues to expect full year dividends to hit 80p.

GSK shares rose 2.7% following the announcement.

GSK's Vaccine Sales Are Ramping Up

Nicholas Hyett, Equity Analyst at Hargreaves Lansdown:

“The fact AstraZeneca beat GSK to a coronavirus vaccine has been a source of some discontent at the UK’s largest vaccine manufacturer. This quarter the group has finally started to put that right. Sales of its vaccine adjuvant, which helps enhance the immune response, are ramping up and a Covid treatment is also hitting pharmacies. It’s part of wider good news for GSK, which has seen sales of its newer drugs gather pace this quarter, helped by favourable comparators last year. Those increased sales have fed quickly though to the bottom line, boosting underlying profits.

However, despite what is definitely progress we think GSK’s long term challenges remain unresolved. There may be more flesh on the bones of the planned Consumer Goods demerger following June’s investor update, but the group is still in limbo waiting for the separation to actually happen.

More pressing is the still very poor levels of cash generation. Free cash flow in the first half of the year hasn’t come anywhere near covering the dividend, and as a result debt continues to mount. A dividend cut after the demerger will ease some of the pressure, as will the sale of some shares in the consumer business, but it’s yet another example of investors being promised jam tomorrow when previous promises have been rather disappointing.”

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