CSL Limited (ASX: CSL) this morning released results for the first half of FY 2014. Net profit after tax was up just 3% on the prior corresponding period, adjusted to 2% on a constant currency basis. Cashflow was down, but this can largely be explained by an increase in receivables and a decrease in payables. Earnings per share were up 7% on the prior corresponding period, due to the combined impact of real growth, and the ongoing share buyback scheme.
The company demonstrated reasonable control over expenses. Although administrative expenses were $10 million greater than the first half of 2013, marketing expenses were flat. Research and development (R&D) was up by $30 million, something that should please shareholders, as the company generally achieves very positive returns on internal investment.
"The underlying result is solid," said the CEO Paul Perreault, "and I'm also very pleased with progress we've made in bringing new products to market and with the advances in our research and development pipeline." The company has also settled an anti-trust dispute.
The global market for CSL's most important product category, immunoglobulin, remained robust and the company saw 7% sales growth in that segment. However, haemophilia product sales, the second most important category, were down by 4% on a constant currency basis. Albumin product sales, that is, sales of blood plasma products, were up by 7% and specialty products brought in an additional 16%. Meanwhile, the relatively small vaccine business, bioCSL, saw sales decrease by 7% over the prior corresponding period. The pie graph below should give investors an idea of the relative size of the different segments.
CSL Limited Sales by Product
The CSL share price has dropped over 4% on open today, to trade below $67. This indicates that some shareholders are disappointed by the half-year result. However, the company has reconfirmed guidance of 7% profit growth over FY 2013, on a constant currency basis. Given a weaker Australian dollar and the share buyback program, this should amount to earnings per share growth of around 10%.
Foolish takeaway
CSL has one of the sturdiest business models on the ASX. In my opinion, the company is likely to grow earnings every year for the next 10 years at least. However, modest profit growth extending beyond the decade is arguably already implicit in the share price, so at current prices, CSL is really only a stock for very long-term investors. I'd love to include CSL in my portfolio at a good price, and I live in hope that the company will suffer a significant share price drop over short-term results. You can't judge much by looking at one half's results, and to me, CSL remains a hold.
