GlaxoSmithKline (LSE:GSK) reported strong sales but a slight dip in profits in its second-quarter (Q2) of 2021 report released today. Sales grew 6% (or 15% on a constant exchange rate basis) compared to the Q2 of 2020. The growth in revenue was mainly the result of robust growth — up 39% for this quarter — in the vaccines business.
However, reported earnings per share (EPS) came in at 27.9p for Q2 2021. That is 39% lower than the 45.5p reported for Q2 2020. GSK also reports adjusted EPS. On this basis, Q2 2021 EPS come in at 28.1p, beating the 19.2p for Q2 2020. Adjusted EPS numbers might provide a better basis for comparisons and assessment as it strips out exceptional and one-time items, like disposals, which elevated Q2 2020 reported EPS.
GSK dividend and earnings outlook for 2021
Pipeline milestones achieved in Q2 2021 included positive phase III results for a drug to treat anaemia associated with chronic kidney disease and the US drug regulator competing review of an HIV drug. GSK announced three strategic collaborations across immuno-oncology and neurology, HIV treatment in Q2 2021. A phase III trial to see if a Covid-19 vaccine that uses GSK’s adjuvant technology was also started in the second quarter.
Overall, Q2 2021 is viewed as positive for GSK. Company management is confident about hitting the upper range of its adjusted EPS targets for 2021. However, that target is for a mid-to-high single-digit per cent decline in adjusted EPS on a constant exchange rate basis. But, that target looks a bit better than the double-digit declines suggested not too long ago.
GSK has declared a dividend of 19p per share for Q2 2021. A total 2021 dividend of 80p per share, which is the same as last year, is expected. But dividends are expected to fall to 55p in 2022 when the company splits into New GSK (paying 44p) and a consumer healthcare company (paying 11p).
How have investors reacted to the GSK Q2 2021 report?
GSK’s Q2 2021 report was released at 12:00 pm BST. Initially, investors seemed happy, as the GSK share price lept by almost 100p. But, just after 12:15 pm BST, the GSK stock price started to give back all of its gains. Right now, the GSK share price is back where it was at the start of the day, sitting around 1,398p.
Based only on the share price moves, I would say that investors were unmoved by the Q2 2021 results. On the one hand, there is the expectation of full-year 2021 adjusted EPS falling — which usually bodes ill for a share price — and the looming dividend cut. But on the other hand, the Q2 2021 results suggest that things are starting to turn around.
GSK management stressed that the pandemic has been tough. Health conditions other than Covid-19 have been somewhat neglected, leading to lower sales for GSK medicines. Analysts were expecting 19.9p of adjusted EPS, and GSK beat expectations comfortably for Q2 2021. The earnings beat was probably the headline that grabbed traders’ attention and drove the share price higher initially. However, after reading further into the report, perhaps they decided that nothing much had changed.
