Teva Misses on Earnings By a Penny, Maintains View - Analyst Blog

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Teva Pharmaceutical Industries Ltd. ( TEVA ) reported first quarter 2014 earnings of $1.22 per American Depositary Share (ADS), a penny short of the Zacks Consensus Estimate but 9% above the year-ago earnings.

First quarter revenues grew 2% to $5.001 billion, slightly below the Zacks Consensus Estimate of $5.056 billion.

Quarter in Detail

Teva reported revenue growth in the U.S. (up 7.7%) and Europe (up 0.9%) in the first quarter. Revenues, however, declined in RoW (down 10.5%). Currency fluctuations negatively impacted total revenue by $30 million.

Revenues in the U.S. increased 7.7% to $2.6 billion in the reported quarter, mainly due to the generic and specialty medicines segments.

The U.S. generics business posted revenues of $1.0 billion, up 17%. Sales benefited from the exclusive launch of a generic version of Xeloda as well as the launch of the generic version of Detrol. Teva also recorded higher sales on its generic version of Pulmicort and other products like generic versions of Niaspan and Tobi. Meanwhile, Teva recorded a decline in sales of its generic versions of Adderall, TriCor and Catapres TTS.

Specialty product revenues increased 3% to $2.1 billion in the first quarter of 2014. Higher revenues were attributable to the performance of Treanda ($180 million, up 5%), Azilect ($114 million, up 23%), Nuvigil ($101 million, up 22%) and Copaxone.

Worldwide Copaxone revenues grew 1% to $1.07 billion. While sales in the U.S. grew 1% to $816 million benefiting from a Jan price increase, ex-U.S. sales declined 2% to $254 million mainly due to the timing of tenders in Russia. The company expects the tender to materialize in the second quarter.

Teva launched its 40 mg thrice-weekly (3TW - three times a week) formulation of Copaxone in the U.S. and is looking to switch a significant number of Copaxone patients to the new formulation by year end.

Meanwhile, respiratory segment revenues declined 2% to $230 million. The women's health business recorded revenues of $124 million, unchanged from the year-ago period.

Revenues in Europe grew just 0.9% to $1.5 billion.

European generic revenues of $818 million declined 4% from the year-ago period. The company attributed the decline in revenues to lower API revenues. A mild winter in central and Eastern Europe and political instability in Russia and Ukraine also impacted revenues.

RoW (Rest of the World including Canada, Israel, certain markets in Eastern Europe, Latin America and Asia) revenues fell 10.5% during the quarter to $865 million.

API revenues decreased 7% to $179 million. OTC revenues declined 12% to $269 million reflecting lower sales in Eastern Europe - the mild winter together with political instability impacted sales.

Research & Development expense increased to $353 million from $329 million in the year-ago period. Meanwhile, Selling and Marketing (S&M) expenditures declined to $967 million from $985 million in the year-ago period.

2014 Outlook Maintained

Teva, which could start facing generic competition for its key branded drug, Copaxone, from mid-14, maintained its guidance for the year. The company had provided guidance for both scenarios - Copaxone remaining exclusive and Copaxone going generic. If generics do enter the market then at least two AP-rated generics are expected to launch on Jun 1.

Teva expects total revenues of $19.8 billion - $20.8 billion this year. However, this range would go down by $500 million if Copaxone generics enter the market. The company expects to deliver earnings of $4.80 - $5.10 per ADS assuming Copaxone remains exclusive. But if generics enter the market, earnings will go down by about 60 cents. According to Teva, each month of delay in the entry of generic versions of Copaxone will add $78 million to revenues and 8 cents to earnings.

The Zacks Consensus Estimate is currently $4.77 per ADS. The Zacks Consensus Estimate for revenues is currently $20.223 billion.

Teva remains committed to cutting costs - it is currently looking to close or divest 11 plants.

Our Take

Teva is going through a transition period and 2014 will be a challenging year for the company. Headwinds include new competition for branded products and fewer generic product launches. Moreover, the company could start facing generic competition for Copaxone which would cut 2014 earnings by 60 cents and revenues by $500 million. While the company's new strategy looks good, execution remains the key.

Teva currently carries a Zacks Rank #3 (Hold). Some better-ranked companies in the health care sector include Impax Laboratories Inc. ( IPXL ), Mallinckrodt plc ( MNK ) and Dr. Reddy's Laboratories Ltd. ( RDY ). While Impax and Mallinckrodt are Zacks Rank #1 (Strong Buy) stocks, Dr. Reddy's is a Zacks Rank #2 (Buy) stock.



IMPAX LABORATRS (IPXL): Free Stock Analysis Report

MALLINCKRODT PL (MNK): Free Stock Analysis Report

DOCTOR REDDYS (RDY): Free Stock Analysis Report

TEVA PHARM ADR (TEVA): 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 The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: ADS , IPXL , MNK , RDY , TEVA

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