Glaxo Tops Q4 Earnings, Revenues Rise Y/Y, 2016 View Intact

GlaxoSmithKline plcGSK reported fourth-quarter 2015 core earnings of 55 cents per American depositary share (ADS), easily beating the Zacks Consensus Estimate of 52 cents. Glaxo's shares were up 2.8% following the release of fourth-quarter and full-year results.

Core earnings were, however, down 28% year over year at a constant exchange rate (CER). Revenues increased 4% year over year (CER) to £6.3 billion.

Full-year core earnings per ADS came in at $2.32, down 15% year over year (CER), reflecting the short-term dilution of the Novartis AG NVS transaction but also due to the impact of the continued transition of the company's Pharmaceuticals business particularly in respiratory.

We note that the company completed the Novartis transaction in Mar 2015.

Full-year revenues increased 6% year over year (CER) to £23.9 billion.

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

The Quarter in Detail

Following the completion of the Novartis deal, Glaxo is focused completely on its three core businesses - Pharmaceuticals, Vaccines and Consumer Healthcare.

While the Consumer Healthcare and Vaccines segments were up 47% and 20%, respectively, the Pharmaceuticals segment was down 9%. All three business segments reflected the impact of the Novartis transaction.

New Pharmaceutical and Vaccine products (like Relvar/Breo Ellipta and Eperzan/Tanzeum among others) registered sales of £682 million in the fourth quarter of 2015. Glaxo now expects these products to deliver at least £6 billion of revenues per annum on a CER basis two years earlier (2018) instead of 2020.

Moreover, within Pharmaceuticals, Global Pharmaceuticals fell 17%, mainly due to a 3% decline in Respiratory sales and a 20% decline in sales of Established Products. The performance of the segment was also disappointing in the U.S. (down 20%), Europe (down 19%) and International (down 11%) markets. However, the decline was more than offset by strong performance of ViiV Healthcare, which shot up 51%. The HIV segment benefited from sales of Tivicay (£174 million) and Triumeq (£289 million).

Glaxo's best-selling respiratory drug, Advair/Seretide, continued to decline (8%). While sales of Advair in the U.S. were up 2% (£592 million) due to a number of favorable price adjustments related to payer discounts and rebates, sales in the European markets plunged 22% (£232 million).

In the Consumer Healthcare division, sales increased in the U.S. (50%), Europe (75%) and international markets (32%). On a segmental basis, the turnover increased substantially in the Wellness segment (>100%) while Skin Health, Nutrition and Oral Health segments registered sales increase of 40%, 12% and 5%, respectively.

Meanwhile, the Vaccines segment benefited from the continued uptake of newly acquired meningitis vaccines, Bexsero in Europe and Menveo in the U.S. and Europe, from Novartis.

2016 Outlook Maintained

Glaxo maintained its earnings outlook for 2016. The company still expects to see core earnings growth in the double digits in 2016.

Other Details

Glaxo is on track to deliver annual cost-saving benefits of £3 billion from its restructuring program, which is largely expected to be completed by the end of 2017. Glaxo continues to expect to pay an ordinary dividend of 80 pence a share for 2016 and 2017. The company also plans to pay a special dividend of 20 pence per share to be paid with the fourth quarter ordinary dividend payment in Apr 2016.

Meanwhile, Glaxo continues to progress with its pipeline.

Our Take

Glaxo's fourth-quarter 2015 results were better than expected with earnings beating expectations. Revenues also grew year over year. We are positive on the performance of new products as well as the products acquired from Novartis. These should help support revenues and ease the impact of the loss of Advair sales. We are also positive on Glaxo's efforts to increase cost efficiency.

Glaxo is a Zacks Rank #3 (Hold) stock. A couple of better-ranked stocks in the health care sector are Anika Therapeutics Inc. ANIK and Horizon Pharma plc HZNP . Both carry a Zacks Rank #1 (Strong Buy).

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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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