Pfizer Tops on Q1 Earnings, Generics Hit Revs - Analyst Blog

By Arpita Dutt,

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Pfizer Inc. ( PFE ) posted first quarter 2014 earnings of 57 cents per share, a couple of cents above the Zacks Consensus Estimate and 11.8% above the year-ago earnings. Revenues, which declined 9% to $11.4 billion, were below the Zacks Consensus Estimate of $12.0 billion.

Revenues were impacted by the loss of exclusivity of certain products including Lipitor, the expiry of the Spiriva collaboration in some countries and the Enbrel agreement.

Despite the decline in revenues, first quarter earnings grew from the year-ago period due to lower costs, a lower tax rate and a lower share count.

The Quarter in Detail

While foreign exchange cut Pfizer's first quarter revenues by $364 million or 3%, operational factors cut revenues by $693 million or 6%. International revenues declined 6% to $7.1 billion. Meanwhile, U.S. revenues declined 13% to $4.3 billion.

From the first quarter of 2014, Pfizer is reporting through three operating segments: the Global Innovative Pharmaceutical segment (GIP); the Global Vaccines, Oncology and Consumer Healthcare segment (VOC); and the Global Established Pharmaceutical segment (GEP). While the GEP, GIP and Consumer healthcare segments recorded a decline in revenues in the first quarter, Global Oncology recorded growth.

The GEP segment recorded a 13% decline in revenues, which came in at $5.99 billion. Factors like the presence of additional generic competition for Detrol LA in the U.S. and Viagra in several EU markets and generic competition for Lipitor and other products that lost exclusivity, the Dec 2012 termination of the co-promotion agreement for Aricept in Japan, lower share in Spiriva revenues in certain regions and the termination of the Spiriva collaboration in other regions led to the decline. However, Lyrica continued to perform well with total sales coming in at $1.15 billion, up 8%.

GIP revenues declined 7% to $3.1 billion reflecting the end of the Enbrel co-promotion agreement, the loss of exclusivity for Lyrica in Canada in Feb 2013 and the performance of Champix in ex-U.S. markets and that of Genotropin, mainly in the U.S. This was partially offset by the performance of Lyrica in the U.S. and Japan, Enbrel in international markets and Eliquis and Xeljanz in the U.S.

Consumer Healthcare revenues decreased 6% to $761 million due to a less severe cold and flu season in the U.S., and increased competition in the pain management market. This was partially offset by operational growth in some emerging markets.

Global Oncology revenues increased 7% to $488 million with performance being driven by Inlyta and Xalkori across the world. However, Sutent revenues were weak in the U.S. and some emerging markets due to the timing of purchases.

Global Vaccine revenues remained flat at $925 million. Prevnar 13 was positively impacted by government purchasing patterns despite lower demand due to adverse weather conditions.

Selling, informational and administrative (SI&A) expenses declined 5% to $3.0 billion during the quarter. R&D expenses remained flat at $1.6 billion. Pfizer should realize cost savings due to workforce reductions, actions taken with the R&D portfolio, as well as savings from a smaller physical footprint.

Maintains Guidance

Pfizer maintained its outlook for 2014 and said it expects full year contribution from Celebrex. The company expects earnings of $2.20 - $2.30 per share on total revenues of $49.2 billion - $51.2 billion. The Zacks Consensus Estimate for earnings and revenues is currently $2.24 per share and $48.9 billion, respectively.

The revenue guidance includes the negative impact of about $3 billion due to recent and expected genericization plus the expiration and near-term termination of certain collaboration agreements.

Pfizer expects SI&A spend of $13.5 billion - $14.5 billion and R&D spend of $6.4 billion - $6.9 billion.

Meanwhile, Pfizer, which repurchased shares worth $1.7 billion through May, expects to buy back shares worth $5 billion in 2014.

Our Take

Pfizer's first quarter results were mixed with the company beating on earnings but missing on revenues. The company's top-line remains under pressure due to genericization. We believe genericization and the expiration of a few co-promotion agreements will continue to hamper top-line growth. However, cost-cutting efforts and share buybacks should help Pfizer achieve its earnings guidance.

Pfizer is currently looking to combine with AstraZeneca ( AZN ). Although the company sweetened its initial offer to AstraZeneca, the latter refused the second proposal as well. By combining with AstraZeneca, Pfizer is looking to boost its pipeline, realize operational synergies, have a more efficient tax structure and speed up earnings growth. However, with AstraZeneca refusing the second offer, Pfizer may have to return with another offer or go hostile.

Pfizer currently carries a Zacks Rank #4 (Sell). Better-ranked stocks in the healthcare sector include companies like Alexion Pharmaceuticals, Inc. ( ALXN ) and Gilead Sciences Inc. ( GILD ) -- both are Zacks Rank #1 (Strong Buy) stocks.

ALEXION PHARMA (ALXN): Free Stock Analysis Report

ASTRAZENECA PLC (AZN): Free Stock Analysis Report

GILEAD SCIENCES (GILD): Free Stock Analysis Report

PFIZER INC (PFE): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Stocks: VOC , ALXN , AZN , GILD , PFE

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