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Pfizer (PFE) Beats on Q3 Earnings, Meets Sales, Narrows View

Pfizer, Inc.PFE reported third-quarter 2018 adjusted earnings per share of 78 cents, which beat the Zacks Consensus Estimate of 76 cents. Earnings rose 16% year over year.

The pharma heavyweight recorded revenues of $13.3 billion, which came in line with the Zacks Consensus Estimate. Revenues rose 1% from the year-ago quarter on a reported basis. On an operational basis, excluding the impact of currency, revenues rose 2% year over year. Currency fluctuation hurt sales by 1% in the quarter due to a strong dollar and weakening of certain emerging markets currencies and euro.

Higher sales of key brands, Ibrance, Eliquis and Prevnar, were partially offset by loss of exclusivity for some products, lower sales of legacy Established Products in developed markets and continued supply shortages in legacy Hospira products.

International revenues rose 5% (up 6% an operational basis) to $6.94 billion. U.S. revenues declined 3% to $6.36 billion.

Revenues from the Consumer Healthcare segment, which Pfizer is considering selling, rose 2% to $839 million. Global Oncology revenues increased 11% to $1.78 billion. Global Vaccine revenues rose 13% to $1.85 billion. Internal Medicine rose 1% to $2.46 billion. The Inflammation & Immunology franchise rose 4% to $1.02 billion. However, the portfolio of Rare Disease declined 5% to $531 million.

Segment Discussion

Pfizer's reporting segments are Pfizer Innovative Health (IH) and Pfizer Essential Health (EH).

Pfizer IH sales grew 4% on a reported basis (up 5% an operational basis) from the year-ago period to $8.47 billion as higher sales of Ibrance in international markets, Eliquis, Xeljanz, Xtandi and Prevnar offset lower sales of Enbrel.

With Viagra losing exclusivity in December 2017, its U.S. and Canada sales are now reported in the EH segment against IH previously. This hurt sales of the IH segment while adding to EH segment sales.

All growth rates mentioned below are on an operational basis.

Ibrance revenues rose 18% year over year to $1.03 billion as higher international sales offset a decline in the United States. Xeljanz sales rose 26% to $432 million. Eliquis alliance revenues and direct sales rose 36% to $870 million. Chantix sales rose 9% to $261 million in the quarter. However, Lyrica sales declined 2% to $1.13 billion.

Xtandi recorded alliance revenues of $180 million in the quarter, up 20% year over year. Pfizer markets Xtandi in partnership with Japan's Astellas Pharma.

Global Prevnar 13/Prevenar 13 revenues rose 10% to $1.66 billion. Prevenar 13 revenues rose 6% in international markets. Prevnar 13 revenues rose 12% in the United States due to higher government purchases than last year for the pediatric indication.

Enbrel revenues declined 11% to $531 million in key European markets due to biosimilar competition. Pfizer has exclusive rights to Amgen, Inc.'s AMGN blockbuster rheumatoid arthritis (RA) drug, Enbrel, outside the United States and Canada.

Pfizer EH segment sales declined 4% (both on a reported and operational basis) to $4.83 billion.

EH revenues were hurt by the loss of exclusivity and associated generic competition for products, primarily Pristiq and Viagra in the United States and Lyrica in Europe and lower revenues from sterile injectables portfolio due to continued legacy Hospira product shortages in the United States. Pfizer is facing supply shortages for sterile injectable products (SIP) from the legacy Hospira portfolio mainly due to capacity constraints and technical issues. Also, lower sales of legacy Established Products in developed markets hurt EH segment sales.

However, in the EH business, biosimilars and emerging markets did well in the quarter. Biosimilars revenues rose 40% operationally while emerging markets revenues grew 11% operationally.

Pfizer markets Inflectra, a biosimilar version of Johnson & Johnson JNJ and Merck's MRK blockbuster RA drug, Remicade. While Inflectra recorded sales of $71 million in the United States and $166 million globally, other biosimilars brought in sales of $31 million (up 6%).

Adjusted selling, informational and administrative (SI&A) expenses were flat (operationally) in the quarter at $3.47 billion. Adjusted R&D expenses rose 8% to $2.0 billion. In the quarter, Pfizer bought back shares worth $1.1 billion.

Earlier this month, Pfizer announced that its CEO for eight years, Ian Read, will step down from the post, effective January 2019. Pfizer's current chief operating officer ("COO") and company veteran, Albert Bourla will take over as the company's new CEO

2018 Guidance

Pfizer narrowed its earnings as well as sales expectations for the full year.

Revenues are expected in the range of $53.0 billion to $53.7 billion compared with of $53.0 billion to $55.0 billion previously. Adjusted earnings per share are expected in the range of $2.98-$3.02 compared with of $2.95-$3.05 billion expected previously. At the mid-point, adjusted EPS is still expected to increase 13%. In 2018, Pfizer expects to buy back shares worth $12 billion with $9.0 billion of share repurchases already completed year to date.

Research and development expenses guidance was maintained in the range of $7.7-$8.1 billion while SI&A spending is projected in the range of $14.0-$14.5 billion versus $14.0-$15.0 billion expected previously.

Adjusted tax rate is expected to be approximately 16% in 2018.

Our Take

Pfizer beat estimates for third-quarter earnings while recording in-line sales. Pfizer attributed the lowered sales outlook to weaker-than-expected revenues in the EH segment (due to continued shortages in the sterile-injections business) and currency headwinds

Shares of Pfizer fell almost 4% in pre-market trading due to the lowered outlook. This year so far, Pfizer's shares have increased 17.6% compared with an increase of 2.2% for the industry .

Pfizer has been working on strengthening its product portfolio through acquisitions and licensing deals. Pfizer boasts a strong pipeline and expects approximately 25 to 30 drug approvals through 2022, including around 15 products that have blockbuster potential.

Pfizer gained FDA approval for two cancer medicines recently. These include Vizimpro (dacomitinib) for a lung cancer indication and PARP inhibitor, Talzenna (talazoparib) for metastatic breast cancer patients with an inherited BRCA mutation. However, headwinds in the form of genericization of key drugs, supply challenges in the legacy Hospira portfolio, pricing pressure and rising competition will put pressure on the top line.

Pfizer currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Pfizer Inc. Price, Consensus and EPS Surprise

Pfizer Inc. Price, Consensus and EPS Surprise | Pfizer Inc. Quote

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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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