Mallinckrodt Earnings Beat, Shares Dip on Low Revs - Analyst Blog

Mallinckrodt's MNK shares have been moving downwards following the company's revenue miss in the second quarter of fiscal 2014 (ended Mar 28, 2014), results of which were reported on May 8. Mallinckrodt reported adjusted earnings of 95 cents per share, beating the Zacks Consensus Estimate of 79 cents. Earnings were below the year-ago figure of $1.00 per share.

Net sales for the quarter were $557.8 million, down 47% from the year-ago quarter. Revenues were well short of the Zacks Consensus Estimate of $567 million. A 6% decline in the Specialty Pharmaceuticals division sales to $324.3 million was the primary reason behind the year-over-year fall in revenues. Sales in Mallinckrodt's other division -Global Medical Imaging – were also down 3% to $222.4 million in the reported quarter.

Quarterly Highlights

The Specialty Pharmaceuticals segment comprises of two sub-segments, Brands and Generics and Active Pharmaceutical Ingredients API. Net sales in Brands were $55.1 million, up 15.3%. Results were aided by the addition of pain drug Ofirmev following Mallinckrodt's acquisition of Cadence Pharma in the reported quarter. Net sales in Generics and API were $269.2 million, down 9.2%. We note that the year-ago figure benefited from increased sales of methylphenidate HCl extended-release tablets. Excess competition also hurt segmental results in the second quarter of fiscal 2014.

The Global Medical Imaging segment includes Contrast Media and Delivery Systems (CMDS) as well as Nuclear Imaging sub segments. Net sales in CMDS were $112.6 million, down 4.7%. Net sales in the Nuclear Imaging segment were $109.8 million, down 1% due to supply chain challenges.

In the second quarter of fiscal 2014, research and development (R&D) expenses on a reported basis were $41.4 million, up 5.6% from the year-ago quarter due to the company's efforts to develop its pipeline. Selling, general and administrative (SG&A) expenses on a reported basis climbed 20.8% to $194.1 million. During the quarter, Mallinckrodt launched pain drugs PENNSAID 2% and XARTEMIS XR. Costs associated with the launches were one of the reasons for the rise in SG&A costs.

Fiscal 2014 Outlook

Mallinckrodt increased its guidance for fiscal 2014. The company expects net sales in the range of $2.28 billion – $2.38 billion (old guidance: $2.2 billion – $2.3 billion) in fiscal 2014. The Zacks Consensus Estimate currently stands at $2.33 billion, well within the guidance range. The company increased its outlook on the basis of the strength of its base business and the purchase of Cadence Pharma.

Net Specialty Pharmaceuticals sales are now expected in the range of $1.38 billion – $1.43 billion (old guidance: $1.3 billion – $1.35 billion). The company upped its fiscal 2014 guidance for methylphenidate HCl extended-release tablets to at least $160 million (old guidance: at least $150 million). Net Global Medical Imaging segment sales are still expected in the range of $850 million to $900 million.

Adjusted earnings per share are now expected in the range of $3.30 – $3.60 per share, up from the previous guidance range of $2.65 – $2.95 per share. The Zacks Consensus Estimate currently stands at $3.45 per share.

Mallinckrodt carries a Zacks Rank #1 (Strong Buy). Stocks like Akorn, Inc. (AKRX), Gilead Sciences GILD and Spectrum Pharmaceuticals, Inc. SPPI also carry the same rank as Mallinckrodt. 

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