Haleon Earnings: Mixed Earnings as Strong Pricing Isn’t Good Enough to Offset Missed Volume

Wide-moat Haleon HLN reported third-quarter earnings that came in slightly below our expectations. Total sales were down 3.3% year over year, or up 5.0% on constant currency, as weak volume/mix and unfavorable foreign exchange significantly weighed down results. We maintain our fair value estimate of $8.70 per share.

Leftover pricing impact from last year continues to carry the top line, but we anticipate this to slow over the coming quarters as inflation cools. For context, Haleon roughly averaged a 7.0% of sales growth solely from pricing during the first nine months of the year compared with 4.3% during fiscal 2022. While we expect pricing to carry over to the remainder of 2023, we anticipate diminishing pricing power from the firm and model a 3%-4% year-over-year price hike over the long term. This is not a Haleon-specific issue, however, and we expect a similar trend for other consumer healthcare companies.

North America was a standout loser during the quarter with sales down 7.5% and a low-single-digit pricing contribution more than offset by volume losses and a strengthened dollar against pound sterling. Furthermore, dynamics from last year made for difficult comparisons. During 2022, certain U.S. retailers ran out of stock on digestive health products, so Haleon re-piped the inventory to make up for the shortage. Haleon is now lapping that situation, and retailers holding less inventory (with destocking mainly impacting Benefiber and Prepation H) posed challenges. However, we largely see this as a one-time hurdle and believe the demand level among consumers remain stable.

Vitamins, minerals, and supplements also had weak quarter relative to other product categories and posted a 6.2% sales decline, or up 1.4% on organic growth. Centrum was up double-digits, but the segment faced headwinds from Emergen-C that continues to return to its prepandemic level.