This article has been adapted from our sister site across the pond, Fool U.K.

GlaxoSmithKline (NYSE: GSK), the U.K.'s largest pharmaceutical company, has released its second-quarter results. Thanks to rising earnings and dividends, its shares remain attractively priced, particularly to income-seeking investors.

GSK goes for growth
GSK reported second-quarter sales down 2% to 6.7 billion pounds. However, after stripping out sales of pandemic-related products, diabetes drug Avandia and herpes medication Valtrex, underlying sales growth rose by 5%.

Operating profit before restructuring charges reached almost 2 billion pounds, more than triple the 641 million pounds reported for the second quarter of 2010. This leap was largely down to lower legal and R&D (research and development) costs.

As a result, earnings per share rose to 25p, reduced to 21.8p after restructuring charges. This allowed GSK to hike its second-quarter dividend from 15p to 16p, as it did in the first quarter.

Now for the bad news
GSK's free cash flow slumped 62% in the first half of 2011, falling to 1.2 billion pounds from 3.2 billion pounds in the first six months of 2010. This dive was due to lower contributions from the products mentioned above, higher legal and restructuring payments, plus a 380-million-pound increase in working capital.

Despite this setback, GSK splashed more cash on buying back its shares, spending 892 million pounds in six months. At the half-year point, GSK's net debt was 9.3 billion pounds, but this is expected to rise over the next two years. Still, compared with GSK's market value of nearly 71 billion pounds, the firm's gearing is still a modest 13%.

Another concern for investors is that GSK expects its overall operating margin to be one percentage point lower in 2011 than in 2010. However, this is a business with margins ranging from 20% in consumer health care to 39% in pharmaceuticals, so it's a relatively modest decline.

A tale of two worlds
As with so many multinationals, GSK operates in a two-speed world, as shown by its sales growth by geography for the second quarter:

Region Turnover (millions of pounds) Growth (%)
Europe 2,113 -2
U.S. 2,098 2
Emerging Markets 1,304 19
Japan 479 12
Asia-Pacific 461 12
Other 265 5
Total 6,720 5

As you can see, GSK generates more than three-fifths (62%) of its sales in Western markets. Thanks to a sluggish recovery in the developed world, sales were down 2% in Europe and ahead only 2% in the U.S. However, emerging-markets sales shot up 19%, while Japan and the Asia-Pacific region both reported 12% sales growth.

Thus, GSK is slowly but surely moving away from its lifelong reliance on the Western world, as sales shift toward the fast-growing East.

More cash on the way
GSK's youthful CEO Andrew Whitty has made it clear that he intends to squeeze more out of GSK, via internal efficiency measures and better balance-sheet management.

What's more, GSK's dividend is likely to keep climbing, as it has done for many years, rising from 39p in 2001 to perhaps 69p this year. In addition, GSK plans to spend close to 2 billion pounds on share buybacks in 2011, so we should expect 1 billion pounds of repurchases in the second half of this year.

As I write, GSK shares are up 1.5% and now traded with a yield of about 5%. Despite reaching a four-year high today, GSK shares trade on undemanding ratings. Hence, I consider them to be undervalued -- and especially attractive to income-seekers and dividend devotees.

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