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Glaxo (GSK) Beats on Q4 Earnings, Posts Dismal '17 View

GlaxoSmithKline'sGSK fourth quarter beat estimates but the outlook for 2017 was weak amid a potential entry of generics for Advair.

Glaxo reported fourth-quarter 2016 core earnings of $0.70 per American Depositary Share (ADS), beating the Zacks Consensus Estimate of $0.57. Core earnings were also up 11% year over year at constant exchange rates (CER).

Quarterly revenues were up 3% at CER to $10.3 billion (£7.6 billion) driven by a strong performance at all of the business segments and beat the Zacks Consensus Estimate of $9.2 billion.

All growth rates mentioned below are on a year-on-year basis and at CER.

Glaxo's share price was up 3.2% this year, outperforming the 0.1% gain witnessed by the Zacks classified industry.

Glaxo's share price was up 3.2% this year, outperforming the 0.1% gain witnessed by the Zacks classified Large-Cap Pharma industry.

Quarterly Highlights

Glaxo reports results under three segments: Pharmaceuticals, Vaccines and Consumer Healthcare. Pharmaceuticals were up 4% while Consumer Healthcare up 2%. Vaccines segment was flat.

Sales of New Pharmaceutical and Vaccine products were up 71% driven by HIV drugs - Tivicay and Triumeq and respiratory disease drugs, Relvar/Breo, Anoro, Incruse and Nucala, and vaccines to prevent meningitis, Bexsero and Menveo.

The Pharmaceuticals division registered revenues growth of 4% driven by improvement in sales of HIV drug sales (+25%). HIV sales were up 32% in the U.S, 13% in Europe and International was up 21% driven primarily by continued strong performances from both Triumeq and Tivicay.

However, sales of Epzicom/Kivexa sales declined 42% due to the impact of generic competition. Respiratory sales increased 2% on the back of 5% growth in the U.S while sales in international markets grew 2% as the portfolio continued to transition to newer products including Relvar/Breo Ellipta. Sales of new respiratory products more than doubled in the U.S.

Sales of New Pharmaceuticals products offset the decline in Seretide/Advair sales (-20%). Flixotide/Flovent sales decreased 4% while Ventolin sales grew 43%. Sales of Established products were down 6% due to decline in international markets (Japan and China). The sales of Lovaza were down 73% in the U.S. while sales of Zeffix were down 51% in China.

At the Consumer Healthcare division, sales were up 2%. The growth in revenues was driven by an increase in sales from the U.S. (3%) and Europe (4%). Sales from International markets were flat. Growth was primarily driven by contributions from the Wellness and Oral health brands such as Otrivin, Voltaren and Sensodyne.

Sales from the Vaccines segment were flat. Geographically, U.S. was up 5% while Europe was up 11%. Sales benefited from continued uptake of meningitis vaccine, Bexsero, in the U.S and Infanrix/Pediarix. However, sales from the international markets were down 11%.

Outlook

The company expects to face generic competition for Advair in the U.S. which will affect the top line adversely. Assuming a 15-20% decline in sales of Advair in the U.S. the company expects core earnings per share to grow around 5% -7%. Assuming generic competition for Advair in the U.S. in mid-2017, the company expects Advair sales of £1 billion in the U.S. while core earnings per share are projected to be flat or decline slightly.

GlaxoSmithKline PLC Price and EPS Surprise

GlaxoSmithKline PLC Price and EPS Surprise | GlaxoSmithKline PLC Quote

Our Take

Glaxo beat estimates in the fourth quarter. However, the guidance for 2017 was disappointing. Although sales of new products (Tivicay and Triumeq, Relvar/Breo, Anoro, Incruse, and Nucala;and, Bexsero and Menveo) will boost the top line, the potential entry for generics for Advair will impact performance. Sales of Advair are also expected to decline in the face of pricing and other competitive pressures.

Moreover, the HIV portfolio has its own set of challenges given the generics for Epzicom/Kivexa in most markets. Hence, growth is expected to be lower in 2017 when compared to 2016.

Investors should also keep an eye for data read-outs and approval of new drugs/vaccines (regulatory decision on shingles vaccine Shingrix expected in the fourth quarter of 2017) given Glaxo's deep pipeline.

Our Take

Glaxo beat estimates in the fourth quarter. However, the guidance for 2017 was disappointing. Although sales of new products (Tivicay and Triumeq, Relvar/Breo, Anoro, Incruse, and Nucala;and, Bexsero and Menveo) will boost the top line, the potential entry for generics for Advair will impact performance. Sales of Advair are also expected to decline in the face of pricing and other competitive pressures.

The HIV portfolio has its own set of challenges given the generics for Epzicom/Kivexa in most markets. Hence, growth is expected to be lower in 2017 when compared to 2016.

Investors should also keep an eye for data read-outs and approval of new drugs/vaccines (regulatory decision on shingles vaccine Shingrix expected in the fourth quarter of 2017) given Glaxo's deep pipeline.

Zacks Rank & Key Picks

Glaxo currently carries a Zacks Rank #2 (Buy).

Other favorably placed stock are Sucampo Pharmaceuticals SCMP , Enzo Biochem, Inc. ENZ and Sunesis Pharmaceuticals SNSS . While Sucampo sports a Zacks Rank #1 (Strong Buy), Enzo and Sunesis carry a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

Sucampo's earnings estimates were stable at $1.22 for 2016 but have increased from $1.69 to $1.74 for 2017 over the last 60 days. The company posted a positive earnings surprise in all of the four trailing quarters with an average beat of 35.5%.

Enzo Biochem's loss estimates for 2017 narrowed 5.88% over the past 60 days. The company recorded a positive earnings surprise in three of the last four quarters, the average being 22.50%. Its share price was up 47.6% in the past one year.

Sunesis' loss estimates narrowed by 5.06% and 8.80% for 2016 and 2017, respectively, over the past 30 days. The company recorded a positive earnings surprise in three of the last four quarters, the average being 0.54%.

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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.


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

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