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Why Is Allergan (AGN) Down 10.1% Since its Last Earnings Report?

A month has gone by since the last earnings report for Allergan plcAGN . Shares have lost about 10.1% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is AGN due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Allergan Beats Q4 Earnings & Sales

Allergan's fourth-quarter 2017 earnings came in at $4.86 per share, beating the Zacks Consensus Estimate of $4.74 by 2.3%. Earnings rose 24.6% year over year driven by higher revenues and lower R&D costs and lower share count, which offset the impact of lower gross margins and higher SG&A spend.

Revenues came in at $4.33 billion, which beat the Zacks Consensus Estimate of $4.28 billion by 1.2%. Revenues rose 12% from the year-ago period.

Key products like Botox and Juvéderm collection of fillers and new products like Vraylar, Viberzi and Namzaric did well in the quarter. However, sales erosion of Namenda XR and Aczone and loss of exclusivity, mainly from Asacol HD and Minastrin, hurt the top line.

Fourth-quarter revenues also benefited from the addition of Alloderm from LifeCell (January 2017) and CoolSculpting body contouring system from ZELTIQ (April 2017) acquisitions

Segment Discussion

Allergan reports revenues under three segments - U.S. General Medicine, U.S. Specialized Therapeutics and International.

U.S. Specialized Therapeutics ' net revenues increased 19.8% to $1.88 billion driven by continued strong performance of its facial aesthetics products, Botox and Juvéderm Collection of fillers.

Botox (cosmetic) raked in sales of $228.4 million (up 14.5%). Botox Therapeutic revenues were $367.2 million, up 17.1%. In addition, Juvéderm Collection of fillers rose 14.7% to $139.5 million. In Eye Care, Ozurdex sales increased 16.8% to $26.4 million while Restasis' sales rose 1.8% to $400.3 million. In Plastic Surgery, breast implants sales increased 21.5% to $69 million, which contributed to the upside. In Medical Dermatology, Aczone sales declined 37.9% in the quarter to $38 million due to generic pressure on the branded acne category and higher discounts for formulary coverage.

LifeCell's Alloderm added $97.9 million while ZELTIQ's CoolSculpting business added $94.4 million to sales in the fourth quarter.

U.S. General Medicine net revenues were flat at $1.5 billion in the reported quarter with sales declining in the Diversified Brands and Women's Health franchises. Anti-Infectives sales rose 14.8% to $66.6 million, Gastrointestinal rose 2% to $453.2 million and Central Nervous System sales rose 2.9% to $349 million.

Established products like Linzess and Lo Loestrin as well as new products like Namzaric, Viberzi and Vraylar did well in the quarter. Linzess' sales rose 12.2% in the quarter to $194.8 million, driven by strong demand. Lo Loestrin sales rose 17.7% to $126.5 million backed by strong demand trends and higher selling prices.

Among the newer products, Namzaric, a once-daily, fixed-dose combination of Namenda XR and Aricept, recorded sales of $36.8 million, almost flat with $37 million in the previous quarter. Viberzi recorded sales of $42.9 million, higher than $40.9 million in the previous quarter. Vraylar sales were $87.7 million in the fourth quarter, higher than $80.2 in the previous quarter driven by demand growth.

Namenda XR sales declined 30.7% year over year to $97.8 million in the quarter due to lower demand and generic pressure.

Asacol/Delzicol sales declined 32% to $42.8 million due to a reduction in demand for Ascaol HD, following the launch of an authorized generic in August 2016 as well as lower demand for Delzicol.

In the Women's Health segment, Minastrin 24 revenues declined 93.2% to $5.3 million in the quarter due to loss of exclusivity in March last year.

The International segment recorded net revenues of $915.9 million, up 16.8% from the year-ago period, driven by growth in Facial Aesthetics, Botox (therapeutic), Eye Care and the addition of CoolSculpting.

Profits Rise

Adjusted operating income increased 16.4% to $2.17 billion in the fourth quarter. Adjusted operating margin rose 190 basis points in the quarter to 50.3% quarter due to improved operating leverage and lower R&D costs.

Selling, general and administrative (SG&A) expenses rose 6.2% to $1.13 billion in the quarter, primarily due to costs related to acquisitions. R&D expenses declined 4.7% to $405.7 million due to cost control and reprioritization of R&D programs.

2017 Results

Full-year 2017 sales of $15.94 billion beat the Zacks Consensus Estimate of $15.89 billion. Revenues were within the guidance of 15.875 billion to $16.025 billion. Sales rose 9.4% year over year.

Adjusted earnings for 2017 were $16.35 per share, which beat the Zacks Consensus Estimate of $16.27 per share and were within the guided range of $16.15-$16.45. Earnings rose 21% year over year.

2018 Outlook

In 2018, Allergan expects lower revenues and earnings than 2018 as it faces generic competition to Restasis.

Allergan maintained its previously issued total sales guidance in the range of approximately $15.0 billion - $15.3 billion assuming the generic Restasis is launched between April and July of 2018.

Meanwhile, the company said that it expects adjusted earnings in the range of $15.25 - $16.00 per share in 2018. In January, Allergan had said that it expected earnings of at least $15.25 per share in 2018.

Adjusted tax rate is expected to be approximately 14% in 2018.

Adjusted gross margin guidance is expected in the range of 85.5% and 86% which is lower than 2017 levels. Gross margins are expected to be hurt by loss of exclusivity of high-margin products - Restasis, Estrace and Delzicol, and unfavorable product mix.

Adjusted R&D expenses are expected to be approximately $1.5 billion while SG&A spend is expected to be approximately $4.25 billion.

Operating margins in 2018 are expected to be in line to slightly below 2017 levels.

On the call, the company said that it does not expect any significant M&A activities in 2018. Allergan expects to reevaluate its M&A strategy in the second half of the year once it gets through the LOEs.

First-Quarter 2018 Outlook

In the first-quarter 2018, revenues are expected to be between $3.5 billion and $3.6 billion while earnings per share are expected to be between $3.20 and $3.40. These numbers represent the lowest revenue and earnings quarter for the year.

In the fourth quarter of 2017, the favorable timing of physician rebating program benefited sales of Allergan's facial aesthetics products. This benefit will be missing in the first quarter of 2018. As such, the company expects first quarter revenue growth rate to be somewhat lower than the annual 2018 growth rate. Also, generic competition for Estrace and Namenda XR will hurt sales sharply in the first quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to four lower.

Allergan plc Price and Consensus

Allergan plc Price and Consensus | Allergan plc Quote

VGM Scores

At this time, AGN has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. Following the exact same course, the stock was also allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for growth investors than those looking for value and momentum.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, AGN has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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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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