Allergan Beats on Earnings by a Penny - Analyst Blog

Allergan, Inc. (AGN) reported fourth quarter 2013 earnings of $1.35 per share, a penny above the Zacks Consensus Estimate of $1.34 per share. The company had guided towards fourth quarter earnings in the range of $1.31 - $1.33 per share.

While earnings increased 20.5% from the year-ago quarter, revenues increased 14.4% to $1,684.4 million, above the Zacks Consensus Estimate of $1,647 million.

Full-year earnings increased 18.1% to $4.77 per share, beating the Zacks Consensus Estimate of $4.76 by a penny. Full-year revenues increased 11.6% to $6,300.4 million, above the Zacks Consensus Estimate of $6,252 million.

The Quarter in Detail

Specialty pharmaceuticals sales increased 14.0% to $1,429.7 million, with eye-care pharmaceuticals, Botox and skin-care sales driving growth.

Eye-care pharmaceutical sales increased 10.8% to $782.2 million with Restasis (up 31%), contributing significantly to growth.

Allergan expects Lumigan franchise sales to be in the range of $590 million – $620 million in 2014 as compared to $625.3 million in 2013. Meanwhile, Alphagan franchise sales are expected in the range of $460 – $490 million in 2014 compared to $474.1 million in 2013.

Restasis sales are expected to increase to $1,030 million – $1,070 million in 2014 from $940 million in 2013. Allergan expects Latisse sales in $100 million – $110 million range in 2014, as compared to $100 million in the year-ago period.

In the fourth quarter of 2013, Botox sales increased 10.7% year over year to $525.6 million. Allergan expects 2014 Botox sales in the range of $2,180 million – $2,280 million, up from $1,982.2 million in 2013.

Meanwhile, Allergan's medical devices segment posted sales of $229.9 million, up 18.6%. While breast aesthetics sales decreased 2.0% to $89.6 million, facial aesthetics sales increased 34% to $137.2 million.

Other Details

Selling, general and administrative (SG&A) expenses increased 17.9% during the quarter to $647.8 million. Research and development (R&D) expenses amounted to $269.2 million, up 12.3%.

Lackluster Earnings Guidance

Allergan expects 2014 earnings of $5.36 - $5.48 per share. The company expects product net sales to range from $6,650 - $6,950 million in 2014, up from 2013 product net sales of $6,197.5 million.

Earnings guidance was well below expectations with the Zacks Consensus Estimate currently standing at $5.52 per share.

For 2014, Allergan expects total specialty pharmaceuticals net sales of $5,720 million –$5,960 million, up from 2013 total specialty pharmaceuticals net sales of $5,339 million.

The company expects medical devices net sales of $930 million - $990 million. Here, performance will be driven mainly by facial aesthetics. Facial aesthetics sales are expected in the range of $540 million - $570 million, up from $477.5 million in 2013.

Breast aesthetics sales are expected in the range of $390 million - $420 million, up from $377.9 million in 2013.

For 2014, Allergan expects cost of sales to product net sales ratio of about 13%, SG&A expenses to product net sales ratio of 37% - 38% and R&D expenses to product net sales ratio of 16.5%.

Allergan expects first quarter earnings in the range of $1.09 – $1.12 per share on product net sales of $1,525 million – $1,600 million. The Zacks Consensus Estimate currently stands at $1.22 per share, much above the company's guidance range.

Our Take

Allergan's fourth quarter results were once again above expectations with the company beating the Zacks Consensus Estimate as well as its guidance. However, we are disappointed with the lackluster earnings guidance for 2014 and first quarter 2014.

Although we believe Allergan's presence across different segments will help maintain growth, we remain concerned about the generic and competitive challenges being faced by the company. We are also worried about the uncertainty surrounding the Restasis patent challenge.

Allergan currently carries a Zacks Rank #2 (Sell). Other stocks which look attractive at current levels include Actelion Ltd. (ALIOF), Affymax, Inc. (AFFY) and Salix Pharmaceuticals Ltd. (SLXP). All three carry a Zacks Rank #1 (Strong Buy).