Following the release of second quarter fiscal 2013 results,
most of the analysts providing earnings estimates for
) have made downward revisions to their estimates for fiscal
2013. The downward revision in estimates is mainly in response to
the company's lowered guidance for fiscal 2013.
Second Quarter Fiscal 2013 Quarter Highlights
Forest Labs reported earnings per share of 8 cents in the
second quarter of fiscal 2013, well below the year-earlier
earnings of 91 cents per share. Results were hit by the loss of
exclusivity on Lexapro.
Excluding acquisition-related amortization costs, second
quarter fiscal 2013 earnings came in at 15 cents, down from 95
cents in the year-ago quarter. The Zacks Consensus Estimate was
hinting towards breakeven earnings.
Second quarter revenues declined 34.9% to $760.6 million, with
net sales falling 38.8% to $692.0 million. Total revenues missed
the Zacks Consensus Estimate of $779 million.
A detailed discussion of second quarter fiscal 2013 results is
Earnings Decline at Forest Labs
Agreement of Estimate Revisions
There is a significant negative bias in earnings estimate
revisions for Forest Labs for fiscal 2013. Following the release
of second quarter fiscal 2013 results, all 12 analysts providing
estimates for the stock lowered their estimates for fiscal
A similar trend is seen for fiscal 2014 as well with 19 of the
22 analysts providing estimates cutting their estimates with no
movement in the opposite direction.
Forest Labs expects to earn 45 - 60 cents per share (excluding
acquisition-related amortization), down from the earlier guidance
of 95 cents - $1.10 per share.
With the entry of generic competition, Lexapro sales will
continue declining. In addition to lower Lexapro sales, other
factors expected to affect sales are lower than expected royalty
income and the discontinuation of shipping of Levothroid.
However, more than the Lexapro impact, we were disappointed to
see Forest Labs cut its revenue expectations for Namenda. The
company now expects Namenda sales to grow 11% in fiscal 2013
instead of 17%. This means that Namenda s sales will be affected
by about $85 million.
Forest Labs said that although sales in the retail segment
were in line with expectations, long term care sales were below
expectations. Long term care sales account for 35-40% of the
company's Namenda sales.
Meanwhile, Linzess, which gained FDA approval in August for
the treatment (once-daily) of adults suffering from irritable
bowel syndrome with constipation (IBS-C) or chronic idiopathic
constipation (CIC), is expected to deliver sales of $25 million
instead of $60 million.
The reduced forecast reflects a delay in the product launch
due to the three-month extension of the FDA review period.
Linzess is partnered with
Magnitude of Revisions
Estimates for fiscal 2013 have gone down by 43 cents following
the release of second quarter fiscal 2013 results. The current
Zacks Consensus Estimate is 25 cents. Fiscal 2014 estimates have
been slashed by 28 cents to $1.27 per share. The reduction in
fiscal 2014 estimates mainly reflects reduced expectations from
We currently have a Neutral recommendation on Forest Labs,
which carries a Zacks #3 Rank (short-term Hold rating). Forest
Labs is facing tough times with Lexapro losing patent
More than Lexapro's genericization, the cut in Namenda's
guidance is disappointing as Namenda is currently the main
contributor to the Forest Labs' top line. Moreover, the
performance of new products especially Teflaro, has been below
expectations. However, we remain encouraged by Forest Labs'
progress with its pipeline candidates.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that
earnings estimate revisions are the most powerful force
impacting stock prices. He turned this ground breaking
discovery into two of the most celebrating stock rating systems
in use today. The Zacks Rank for stock trading in a 1 to 3
month time horizon and the Zacks Recommendation for long-term
investing (6+ months). These "Earnings Estimate Scorecard"
articles help analyze the important aspects of estimate
revisions for each stock after their quarterly earnings
announcements. Learn more about earnings estimates and our
proven stock ratings at
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