Valeant Beats on Earnings, Revises Outlook - Analyst Blog


Shares of Valeant Pharmaceuticals ( VRX ) fell 3.1% initially when it reported third quarter results on Oct 31, 2013 due to lowered annual guidance reflecting the negative impact of currency translation rates and increased generic competition.

Nevertheless, shares have regained approximately 4.3% in the last two trading sessions making up for more than it lost.

Valeant reported third quarter 2013 cash earnings per share of $1.43 (excluding special items and non-cash expenses), up from the year-ago earnings of 1.15 per share. Excluding stock-based compensation expense, cash earnings per share came in at $1.41. The Zacks Consensus Estimate was $1.40 per share.

Revenues for the quarter were $1.54 billion, up 74.4% from the year-ago period, bolstered by the recent acquisition of Bausch+ Lomb. However, increased generic competition adversely impacted results. Revenues missed the Zacks Consensus Estimate of $1.67 billion.

Quarterly Highlights

Product sales at Valeant amounted to $1.51 billion during the third quarter of 2013, up 76.6% year over year.

Total sales from developed markets jumped 76.6% year over year to $1.14 billion fuelled by the acquisition of Bausch + Lomb. Same store organic product sales were 4%. The growth in these markets was also driven by continued improvement in the dermatology franchise, aesthetics and oral health portfolios, orphan drug products and CeraVe.

However, the third quarter results were negatively impacted by the genericization of the Zovirax franchise, BenzaClin and an early launch of a generic version of Retin-A Micro. Valeant had expected generic competition for acne drug Retin-A Micro in early 2014. An early launch of the same has negatively impacted the bottom line by 4 cents and Valeant expects a further 6 cent impact in the fourth quarter of 2014.

Sales from the emerging markets grew 68.4% year over year driven by the acquisition of Bausch+Lomb. The results were also positively impacted by strong growth in Poland, Russia, South East Asia and South Africa.

Research & development (R&D) expenses more than doubled to $49.0 million from $19.2 million in the third quarter of 2012.

We note that Valeant completed the acquisition of Bausch+ Lomb in Aug 2013 for $8.7 billion. Valeant now expects synergies of more than $850 million, up from the earlier estimate of $800 million. Of the total projected synergies, more than $500 million is expected in 2013. The company remains on track to complete the acquisition by Jan 1, 2014.

2013 Guidance Revised

Valeant updated its guidance for 2013. Valeant now expects revenues between $5.7 billion and $5.9 billion, down from the previous projection of $5.8 billion - $6.2 billion. Sales are expected to be negatively impacted to the tune of $300 million in 2013 by generic competition for Zovirax, Retin-A Micro and a number of other brands.

Valeant expects Vanos to lose patent protection in the U.S. and Wellbutrin in Canada in the fourth quarter of 2013.

Earnings per share on a cash basis are now projected around $6.11 - $6.16 compared to the earlier projection of $6.00 -$6.20. Foreign currency exchange rates are expected to hurt the top line and bottom line by $20 million and 3 cents, respectively.

Although we are disappointed by the lowered guidance, we are positive on the Bausch+ Lomb acquisition and expect momentum from the same.

Valeant currently carries a Zacks Rank #3 (Hold). Right now, Shire ( SHPG ), Salix Pharmaceuticals ( SLXP ), and Forest Laboratories ( FRX ) look attractive. While Shire is a Zacks Rank #1 (Strong Buy) stock, Salix Pharma and Forest Labs are Zacks Rank #2 (Buy) stocks.

FOREST LABS A (FRX): Free Stock Analysis Report

SHIRE PLC-ADR (SHPG): Free Stock Analysis Report

SALIX PHARM-LTD (SLXP): Free Stock Analysis Report

VALEANT PHARMA (VRX): Free Stock Analysis Report

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Zacks Investment Research

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: FRX , SHPG , SLXP , VRX

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