Mylan Beats on Q1 Earnings, Revenues Lag, 2016 View Intact

Mylan N.V.'s MYL first-quarter 2016 earnings (excluding special items) of 76 cents per share beat the Zacks Consensus Estimate by a penny. Also, reported earnings escalated 9% from the year-ago quarter, driven by higher revenues.

Revenues grew 17% to $2.19 billion, but fell short of the Zacks Consensus Estimate of $2.26 billion. The top line recorded year-over-year growth on the back of solid revenue growth at the Generics segment.

Quarter in Details

Generics third-party net sales, derived from sales in North America, Europe and Rest of World, soared 17% to $1.93 billion. Segmental third-party net sales climbed 8% to $919.7 million in North America. While new product launches aided revenues, factors offsetting this increase were lower sales on existing products.

Third-party net sales from the European market increased 45% to $587.7 million. The increase was mainly due to incremental net sales derived from established products as well as new products. However, higher volumes on existing products, primarily in France, were offset by lower pricing throughout Europe due to government-imposed pricing reductions and competitive market conditions.

Third-party net sales from Rest of World increased 10% to $420.8 million. Segmental performance was driven mainly by incremental net sales from established products and from certain female healthcare businesses acquired from Famy Care Limited, and to a lesser extent from new product launches across the region. Higher volumes in Japan and Australia also contributed to the increase. This was partially offset by lower pricing throughout the region and a decrease in third party net sales volumes from the anti-retroviral franchise.

Beginning from the first quarter of 2016, the company reclassified sales from its Brazilian operation from the Rest of World region to the North America region. The amount reclassified for the three months ended Mar 31, 2015, was about $10.2 million.

Third-party net sales at the Specialty segment increased 17% to $247.9 million. Specialty segment sales benefited from higher volumes of EpiPen Auto-Injector and higher sales of Perforomist Inhalation Solution.

Adjusted gross margin during the first quarter of 2016 expanded to 54% from 53% in the year-ago quarter on the back of contribution from established products as well as new product launches, partially offset by decreased margins on existing products in North America.

2016 Outlook Maintained

Mylan reiterated its outlook for 2016. The company continues to expect earnings in the range of $4.85 to $5.15 per share (the midpoint of which represents a year-over-year increase of 16%) while total revenues are expected in the range of $10.5 billion to $11.5 billion (the midpoint of which again represents a year-over-year increase of 16%). The Zacks Consensus Estimate for earnings is $4.90 per share on revenues of $10.6 billion.

Meanwhile, Mylan is set to acquire Meda, a leading international specialty pharmaceutical company, in a deal worth $9.9 billion. The transaction is expected to be completed by the end of the third quarter of 2016.

Our Take

Mylan's first-quarter results were mixed with the company beating on the bottom line while missing top-line estimates. Nevertheless, we are encouraged by double-digit growth both at the Generics and Specialty segments. We are also positive on the Meda deal. We expect investor focus to remain on updates from the transaction, going forward.

Mylan is a Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the health care sector include Aegerion Pharmaceuticals, Inc. AEGR, Gilead Sciences Inc. GILD and ANI Pharmaceuticals, Inc. ANIP. All three stocks sport a Zacks Rank #1 (Strong Buy).

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