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Eyes Down For GlaxoSmithKline plc’s Results

Pharmaceuticals giant GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) is due to announce its half-year results on Wednesday this coming week (24 July).

At the time of writing, the shares of Britain’s biggest drugs group are trading at 1,725p – up a healthy 25% over the last six months compared with a 7% rise for the FTSE 100.

How will GSK have performed in the first half compared with last year’s first half? And will the company be on track to meet analyst consensus forecasts for this year’s key full-year numbers? Here’s your cut-out-and-fill-in table!

  H1 2012 FY 2012 H1 2013 Forecast
FY 2013
Forecast
FY growth
Turnover £13.1bn £26.4bn ? £27.0bn +2%
Core earnings per share (EPS) 53.7p 111.4p* ? 116p +4%
Dividend per share 34p 74p ? 74.5p +1%

* Previously reported as 112.7p. Restated due to a change in International Accounting Standards

Turnover

GSK guided on turnover for 2013 within its annual results for 2012: the board said it expected “turnover growth of around 1%” at constant exchange rates. Management reiterated the guidance within the company’s first-quarter results announced in April.

Based on that 1%-growth guidance, GSK could be expected to turn over £26.7bn for the full year. Current analyst forecasts are a little more optimistic at £27bn, representing growth of 2%.

GSK’s turnover for Q1 this year came in at £6.5bn, down 2% on the same period last year. However, according to consensus estimates from Yahoo Finance, turnover is expected to edge up to £6.6bn for Q2. Therefore, the first-half number to watch for is £13.1bn — the same as last year’s first half.

Earnings

GSK also gave guidance on EPS for 2013 within its annual results for 2012: the board said it expected “core EPS growth of 3-4%” at constant exchange rates from a 2012 restated base of 111.4p. As with turnover, management reiterated the guidance on earnings within the company’s Q1 results. Current analyst forecasts of 116p EPS for the full year (up 4% on last year) are at the top end of the company’s guidance range.

GSK’s EPS for Q1 this year came in at 26.9p, down 6% on the same period last year. Despite analysts expecting turnover to edge up for Q2, consensus estimates from Yahoo Finance have EPS at 26.6p, slightly down on Q1 — but 2% ahead of last year’s Q2. If the analysts are right, we can expect to see H1 EPS of 53.5p within next week’s results — about on a par with the same period last year.

Clearly, on the H1 forecasts, GSK will have to put in an improved performance during H2 to meet both company guidance and analyst expectations for full-year turnover and EPS. It would be a good sign of management confidence if the board reiterates its guidance, so shareholders should keep an eye out for that.

Dividend

At the start of the year, GSK told us it expected to deliver “continued dividend growth” for 2013. The board lifted the Q1 dividend to 18p from 17p, an increase of 6%. As the company is in the habit of paying the same dividend in Q2 as in Q1, shareholders can expect another 18p dividend to be announced next week.

Curiously, given the 6% dividend growth to date, the analyst consensus for the full-year dividend is 74.5p compared with last year’s 74p — less than 1% growth. It would appear the consensus is dragged down by some analysts expecting the full-year dividend to be held at last year’s 74p level.

In what seems to me to be the unlikely event that management lowers full-year guidance on turnover and earnings, and holds the Q2 dividend at 17p instead of the expected rise to 18p, those analysts who are bearish on the full-year dividend could be proved right.

More likely, though, in my opinion, is that the Q2 dividend will be increased to 18p, and that analysts expecting full-year dividend growth of 6% or growth in line with management’s EPS guidance of 3-4% will be closer to the mark.

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> G A Chester does not own shares in any of the companies mentioned in this article.