What Haleon (HLN) Said on Its Q3 Earnings Call

Key Points

• Haleon’s third-quarter performance fell short of expectations, primarily due to weaker North American growth, a softer cough, cold and flu season, and difficult consumer conditions in Europe. Cold and flu consumption declined by high single digits, reducing group performance by an estimated 40 to 50 basis points.
• A Chinese classification issue affecting certain over-the-counter Centrum products reduced third-quarter performance by about 50 basis points, and Haleon expects the disruption to continue through 2027. The company said the issue is not related to product safety or quality and plans to offset it through portfolio changes and new e-commerce offerings.
• Management is accelerating operational changes, investing in innovation and productivity, and remains committed to its medium-term 4% to 6% growth ambition. Haleon also announced a share buyback while retaining capacity for bolt-on acquisitions in higher-growth wellness categories.

Haleon NYSE: HLN said its third-quarter performance fell below expectations, citing weaker-than-anticipated North American growth, a softer cough, cold and flu season, a Chinese classification issue affecting Centrum, and continued challenging consumer conditions in Europe.

Chief Executive Officer Brian McNamara said the company is accelerating operational changes intended to strengthen growth, though he acknowledged that the transformation has taken longer and been more disruptive than expected.

“We are rewiring the company,” McNamara said, pointing to changes in innovation, commercial execution, marketing, resource allocation and the use of technology. He said those initiatives should be more fully embedded heading into 2027, but have not yet delivered their full benefits.

North America misses expectations as cold and flu demand weakens

Chief Financial Officer Dawn Allen said Haleon had expected North America to strengthen during the third quarter, emerging markets to accelerate and Europe to remain difficult. While emerging markets did accelerate, North American improvement was less pronounced than the company expected.

Low consumption in cough, cold and flu categories was a central factor. Allen said consumption in that category declined by high single digits during the quarter, leading to lower shipments and creating an estimated 40 to 50 basis-point impact on group performance.

McNamara said Haleon’s North American oral-health business performed strongly, with double-digit growth for Sensodyne in the quarter. However, he said the company does not expect that pace of Sensodyne growth to continue. North America will also lap a price increase from the prior year’s fourth quarter.

In pain relief, Haleon expects competitive launches to weigh on fourth-quarter performance. The company plans to launch its own innovation in the category toward the end of the quarter, which McNamara said should support stronger performance in 2027 but will be a near-term drag.

Haleon said U.S. cold and flu categories have risen by high teens over the past four weeks, with the company slightly ahead of that growth. Still, McNamara cautioned that the season remains difficult to predict. He noted that 70% of Haleon’s cold and flu business is outside the U.S., where the season had not yet meaningfully started and sales had been slightly down in some markets.

China classification issue expected to extend through 2027

In China, Allen said Haleon delivered high-single-digit underlying growth, but performance was affected by a classification issue involving raw materials used in Centrum over-the-counter products. The issue reduced group performance by about 50 basis points in the third quarter.

McNamara said the matter affects Centrum products classified as over-the-counter, which are sold through pharmacies and cannot be sold on e-commerce platforms. Centrum’s health-food products, by contrast, are largely sold online and have been growing at healthy double-digit rates, he said.

The company had been in discussions with Chinese health authorities through mid-September, but McNamara said it became clear near the end of the quarter that there would not be a near-term resolution. Haleon does not currently see a path to return the affected products to market and is assuming the issue will continue through 2027.

McNamara said the issue is not related to product safety or quality. Haleon is seeking to mitigate the impact by emphasizing its existing Chinese portfolio, making portfolio changes and accelerating the fourth-quarter launch of Benefiber in China as an e-commerce opportunity.

Europe remains difficult while emerging markets improve

Europe remained a challenging region, with category unit sales down by mid-single digits in the third quarter, according to Allen. She said consumers are seeking greater value, using pantry stocks and reducing discretionary spending, particularly in vitamins, minerals and supplements.

Allen said Haleon’s portfolio has remained resilient in that environment and that the company continues to gain share. Pharmacy remains an important channel in Europe, while e-commerce penetration remains relatively low across many markets, aside from Germany.

To broaden its channel opportunities, Haleon is introducing products such as VoltaHeat, a non-medicated patch and cream line leveraging the Voltaren brand. Allen said the products can be sold beyond pharmacy channels, including mass retail and e-commerce. She also cited Sensodyne Duo Pack in the U.K. as an example of using price-pack architecture to broaden market coverage; the product is now a top-five selling stock-keeping unit.

Elsewhere, the company reported double-digit growth in India and said its Middle East and Africa business returned to high-single-digit growth. McNamara said India is expected to continue delivering mid- to high-teen growth.

Investment and productivity remain central to plans

Allen said Haleon continues to invest in advertising and promotion at a healthy level and is investing ahead of revenue growth. She said supply-chain productivity savings, along with early savings from the company’s operating-model changes, are helping fund investment and offset cost pressures, including costs related to the Middle East.

For 2027, Allen said the company expects to continue investing in growth while seeking to mitigate potential inflation and cost-of-goods pressures through supply-chain and operating-model productivity, as well as price-pack optimization. She said the company would provide more specific guidance at its full-year results.

McNamara maintained that Haleon should be capable of achieving its medium-term 4% to 6% growth ambition, while acknowledging that the company has not achieved that rate in recent years. He said the priority is growth rather than reducing investment and that Haleon does not believe it has a fundamental pricing issue.

The company is also rolling out enhanced revenue-growth-management and commercial-execution tools, including artificial-intelligence-enabled capabilities, to its top 20 markets through the fourth quarter and first quarter. McNamara said the tools have shown benefits in the U.S. and the U.K.

Capital allocation favors bolt-on deals and share repurchases

Haleon said it remains focused on bolt-on acquisitions that could strengthen its portfolio, particularly in higher-growth wellness areas, but McNamara said the company is not seeking a transformational transaction.

Allen said the company’s leverage is broadly in line with its target of around 2.5 times, following improved working capital performance. Haleon announced a share buyback, which Allen said reflects strong free cash flow and management’s view that repurchases currently offer the best return for shareholders while preserving capacity for acquisitions.

McNamara said Haleon will provide a fuller update on its progress when it reports full-year results in February.

About Haleon (NYSE:HLN)

Haleon plc NYSE: HLN is a global consumer health company that develops, manufactures and markets over-the-counter medicines, oral health products, vitamins and supplements. Its portfolio is organized around categories including pain relief, respiratory health, digestive health, therapeutic oral care, everyday oral care, vitamins and minerals, and skin health.

Haleon's well-known brands include Sensodyne, Polident, parodontax, Centrum, Advil, Voltaren, Panadol, Otrivin and Theraflu. The company's products are sold through pharmacies, supermarkets, retailers and e-commerce channels, serving consumers in markets around the world.

Haleon was established as an independent consumer health business following its demerger from GSK in July 2022.

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