Hang on just a bit longer for sales growth, GSK chief says

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Things are looking up for GlaxoSmithKline ($GSK)--just not quite yet. We've heard CEO Andrew Witty (photo) talk about "underlying sales growth" for several quarters now, and this earnings announcement was no different in that regard. The company missed forecasts for fourth-quarter earnings and sales, and margins weren't what they might have been for 2011, but all that is about to change, executives said. This year is GSK's year to return to real growth, and operating margins will gradually improve, too, they said.

"This is a time where we should feel optimistic," Witty told MerchantCantos. "We feel like we are moving into a new era for the company, and we now need to focus on absolute disciplined execution to make sure that we take advantage of all of the opportunities that we've worked so hard to try and create for ourselves."

Thing is, analysts appear to believe it. Sanford C. Bernstein and Credit Suisse both said they expect earnings to increase through 2015 as the company replaces sales lost to generic competition (Valtrex), safety questions (Avandia) and global disease patterns (pandemic-flu treatments), Bloomberg reports. Collins Stewart's Emmanuel Papadakis summarized the results in words Witty might have uttered: "While the results were superficially slightly disappointing, Q4's underlying picture is positive and reinforces our view that GSK's structural recovery is on track, with the stock likely just beginning a multiyear re-rating," he told the BBC.

Not that there aren't skeptics--Cenkos Securities' Navid Malik, for instance, told Bloomberg that GSK's guidance "isn't very detailed in terms of the growth they're hoping to deliver." Nor are the company's challenges past. European sales dropped 4%, and pricing pressures there aren't expected to ease up; Witty said he's expecting similar declines in the region for 2012. The company's follow-up to blockbuster respiratory drug Advair, dubbed Relovair, didn't perform well in a recent study.

But much of GSK's patent pain is behind it, Reuters points out. Investments in emerging markets are paying off. Return on R&D investment is up to 12% after a major overhaul, and is on its way to the company's 14% target. Four drug candidates are close to being ready for regulatory submission. "2012's performance is likely to be buoyed by ... positive R&D newsflow," Papadakis said. Perhaps next year, Witty really will have left the "underlying" growth talk behind.

- check out the news from the BBC
- get the Bloomberg coverage
- see the MerchantCantos release
- read the Wall Street Journal piece
- find the article at Reuters

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