Haleon Plc Q3 FY2026 earnings call

Brian McNamara highlighted that while organic revenue growth of 2.6% was below expectations, the company is executing on a clear set of priorities to drive future outperformance.

• North America Momentum: Despite a cautious consumer environment, the region is showing encouraging progress. Sensodyne consumption is growing three times the market rate, and Centrum US consumption has grown double-digit over the past 12 weeks due to improved execution, medium mix changes, and innovation like the expanded gummies range.
• Emerging Markets Strength: India continues to be a standout performer with high-teens growth, driven by rural activations and access offerings (40% of tubes now from low-income offers). China delivered mid-single-digit growth, excluding the impact of a raw material classification change affecting Centrum OTC products.
• Respiratory Headwinds: Cold and flu consumption declined significantly in Q3 (high single-digits in the US off-season), leading to lower retail orders. However, early signs in Q4 show category consumption up mid-teens in the US, where Haleon is growing ahead of the market through targeted media and retailer collaboration.
• Productivity and Investment: The productivity agenda is delivering ahead of expectations, providing flexibility to invest in top-line growth while maintaining high-single-digit operating profit growth targets. The company is reinvesting in brands, particularly in digital commerce, oral health, and key markets like the US, India, and China.
• Four Strategic Priorities: Management outlined four key initiatives for 2027: (1) Accelerating and scaling innovation, including leveraging AI for clinical claims and launching new products; (2) Driving consistent commercial execution via standardized 'perfect store' models using AI tools; (3) Embedding best-in-class revenue growth management with advanced pricing analytics; and (4) Improving Advertising & Promotion (AMP) investment effectiveness by targeting precise audiences and channels.

The company reported mixed performance across its key geographic segments. North America saw organic revenue growth of 2.5%, driven by price increases (1.8%) and volume/mix gains (0.7%), with strong momentum in oral health and Centrum offsetting weakness in respiratory. Europe experienced a decline in organic revenue of 0.6%, primarily due to a significant drop in volume mix (-2.7%) as consumers sought value, particularly in Germany. Asia Pacific delivered organic revenue growth of 3.9%, supported by double-digit growth in digital commerce for the 15th consecutive quarter. International markets grew robustly at 6.9% (5.6% price, 1.3% volume), led by high-teens growth in India and high-single-digit growth in the Middle East and Africa. Latin America grew at low single digits against a tough prior-year comparator.

• Full-Year Organic Revenue: Revised downward to approximately 2.5% growth, reflecting headwinds from Centrum China’s raw material classification issue and accelerated inventory adjustments in Brazil.
• Operating Profit: Maintained guidance for high-single-digit operating profit growth, supported by productivity initiatives delivering ahead of schedule.
• Brazil Go-to-Market Change: Accelerated the rollout of a new go-to-market strategy in Brazil to Q4 2026 to coincide with tax framework implementation, expected to reduce net revenue by £15-20 million in Q4 but improve long-term efficiency and coverage.

• Regulatory/Supply Chain Issues in China: A classification change impacting Centrum's OTC registered products has suspended importing a raw material. This is not a safety issue but is expected to impact results through Q4 2026 and into 2027.
• Consumer Softness and Value Seeking: Continued pressure on consumer confidence, particularly in Europe where shoppers are increasingly seeking value, leading to volume declines.
• Seasonal Respiratory Volatility: Significant sensitivity to seasonal trends, with Q3 seeing high-single-digit declines in US cold and flu consumption, impacting short-term order volumes.
• Execution Consistency: Management acknowledged dissatisfaction with broader group growth rates and consistency, indicating risks if new operational models and growth initiatives do not scale effectively across all markets.

Q: Can you elaborate on the specific nature of the raw material classification change in China and why it is taking so long to resolve? / A: CFO Dawn Allen clarified that this is a regulatory classification issue regarding Centrum OTC registered products, not a quality or safety concern. Food-registered products remain unaffected. While remedies are being explored, the complexity of the regulatory landscape means the impact will persist through Q4 and into 2027, requiring careful navigation rather than a quick fix.

Q: You mentioned accelerating the Brazil go-to-market model change to Q4 2026. What drives this acceleration and how does it affect profitability? / A: Brian McNamara explained that discussions with customers revealed an opportunity to optimize the strategy earlier, coinciding with Brazil's new tax framework. This acceleration aims to deliver better cost-to-serve, more diversified customer bases, and lower overall inventory. While it creates a one-time £15-20 million headwind in Q4 net revenue, it positions the business for more efficient, long-term growth.

Q: How are you addressing the softness in the respiratory category beyond just waiting for the season to turn? / A: Management emphasized proactive measures rather than passive waiting. In the US, they are implementing more targeted media, better audience selection, stronger creative, and closer retailer collaboration. The launch of the "We've Got You Covered" campaign in the UAE, combining Panadol Cold and Flu and Otrovin, serves as a model for proactive engagement to capture demand early in the season.

Q: With productivity savings ahead of expectations, how exactly are you reallocating these funds to drive growth? / A: Dawn Allen detailed that productivity fuels reinvestment in faster-growing areas like digital commerce, oral health, and key markets (US, India, China). Specifically, they are shifting AMP spend toward precise growth audiences, social content, influencer partnerships, and discoverability. This approach has already yielded a mid-teens increase in incremental retail sales from media and a 6% ROI increase this year.