Glanbia Earnings: EPS Guidance Increased on Lower Input Costs

No-moat Glanbia GLB delivered 6.6% growth in adjusted EPS (constant currency) in the first half of 2023. Solid pricing in the performance nutrition, or GPN, segment and a 110-basis-point improvement to 7.2% in the group EBITA drove this. Volumes continued to deteriorate in both GPN and the nutritional solutions segment, driven by customer destocking and lower demand for the brand SlimFast. Management expects that the volume picture will improve in the second half of the year and input costs will continue to decrease, which should support a stronger EBITA margin for the year than previously expected. Consequently, full-year guidance for constant-currency adjusted EPS growth has been increased to 12%-15% from 7%-11% previously. We will likely increase our fair value estimate by a low-single-digit percentage after updating our model, but we continue to view shares as appropriately priced at current levels.

Customer inventory management had an impact on the nutritional solutions segment, a common development for this year across most of the specialty chemicals manufacturers in our coverage. Management indicated an improvement towards the end of the second quarter and going into the third quarter, which is expected to support a volume recovery in the second half of the year. EBITA margin for the segment is expected to land between 12% and 13% for the full year (compared to 11.4% in 2022).

In GPN, the 3.4% like-for-like revenue growth was primarily driven by the Optimum Nutrition brand, which posted revenue growth of 16% (13.6% from pricing and 2.6% from volumes) with continued growth in consumption in the U.S. On the other hand, the brand SlimFast’s rapid decline in U.S. consumption (negative 33% in the second quarter) continued to weigh on the segment’s performance, as we anticipated. The EBITA margin is expected to land between 13.5% and 14.5% (compared with 11.2% in 2022), driven by lower cost of goods, particularly in regard to dairy.