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Given some of the travails of this past year that GlaxoSmithKline (LSE:GSK) and its share price have suffered (down 13% in 2014), board members have likely been longing to have a day when they could hum along with Curly McLain in the cast of the Rogers and Hammerstein musical “Oklahoma” as he sings, “Oh, what a beautiful morning, O what a beautiful day; I’ve got a beautiful feeling, everything’s going my way!” Today might be that day.
GSK’s share price opened modestly above yesterday’s close of 1,342.00 at 1,347. When the company released it’s third quarter earnings report at noon, shares took a sharp rise to 1,412.00, giving itself a substantial boost which was, in fact, its biggest gain in the last six months. Its sharp increase also provided the support the FTSE needed for the day as well. Take a look at the FTSE index charts and note the time that the breakout began to happen.
Earnings Exceeded Expectations
Plagued by allegations of corruption in China and disappointing sales of its COPD therapies, Breo and Anoro, and the expiration of its patent on asthma remedy, Advair, the company delivered results that were, although not enviable, encouraging. With the expectations for GSK profits to decline in excess of 24%, a drop on 1% renewed investor hopes.
Expenses Expected to be Reduced
GSK anticipates cutting operational expenses by £1 billion over the next three years. This means a leaner and more profitable operation. Nearly half of the cost savings are expected to come during the 2016 fiscal year. In addition, the company is planning to return £4 billion to shareholders in 2015.
Exploring a Spin Off
Viiv Healthcare is a joint venture with Pfizer (LSE:PFE) and Shionogi & Co. that is focused on development of drugs for the treatment of HIV. GSK indicated in the report that it is investigating the potential of divesting Viiv through an IPO.
Eradicating Ebola
It may not be something that analysts readily consider, but updating shareholders of its vigorous activity aimed toward fending off the deadly Ebola virus by developing an effective vaccine, is an intangible, but one that is desperately needed. The day will come for determining the financial impacts a vaccine will have. For now, the need is for a vaccine that will allow that day to come. CEO Andrew Witty said that, “I fully anticipate that the initial supply should be available before the year end,” of 2014. (Please note that those initial supplies will not be adequate for general distribution. They will be used to vaccinate healthcare workers and volunteers working in Ebola-stricken areas of Africa.)
Extolling GSK’s Virtues
- GSK’s revenue declined, but it is better the industry average.
- GSK’s operating cash flow decline, but it is also better than the industry average.
- GSK’s ROE increased and it is better than the industry average.
A video interview with CEO Sir Andrew Witty and CFO Simon Dingemans discussing today’s results is available on the company website at www.gsk.com.
