Pfizer Beats on Q2 Earnings, Revs Despite Generic Pressures

Pfizer Inc. PFE posted second quarter 2014 earnings of 58 cents per share, a couple of cents above the Zacks Consensus Estimate and 4% above the year-ago earnings. Revenues, which declined 2% to $12.8 billion, were above the Zacks Consensus Estimate of $12.4 billion.

Revenues were impacted by the loss of exclusivity of certain products including Detrol LA (in the U.S.), the expiry of the Spiriva collaboration in some countries and the Enbrel agreement.

 

The Quarter in Detail

While foreign exchange rates cut Pfizer's second quarter revenues by $87 million or 1%, operational factors cut revenues by $113 million or 1%. International revenues remained flat at $7.9 billion. Meanwhile, U.S. revenues declined 4% to $4.9 billion.

Although the Global Established Pharmaceutical GEP and Global Innovative Pharmaceutical (GIP) segments recorded a decline in revenues in the second quarter, the Global Oncology, Global Vaccines and Consumer Healthcare segments recorded growth.

The GEP segment recorded a 6% decline in revenues, which came in at $6.5 billion. Factors like the presence of additional generic competition for Detrol LA in the U.S., Viagra in several EU markets, and Aricept in Canada and the termination of the Spiriva collaboration in most countries led to the decline. However, Lyrica continued to perform well with total sales coming in at $1.3 billion, up 16%.

GIP segment revenues declined 5% to $3.5 billion reflecting the end of the Enbrel co-promotion agreement and the Feb 2013 loss of exclusivity for Lyrica in Canada. This was partially offset by the performance of Lyrica in the U.S. and Japan, Eliquis across the world and Xeljanz in the U.S.

Consumer Healthcare revenues bounced back this quarter with revenues increasing 14% to $912 million. Revenues benefited from the May 2014 launch of Nexium 24HR.

Global Oncology revenues increased 16% to $570 million with performance being driven by Inlyta and Xalkori across the world. However, Sutent revenues were weak due to the timing of purchases in China.

Global Vaccine revenues grew 13% to $1.1 billion. Prevnar 13 was positively impacted by government purchasing patterns and higher demand.

Selling, informational and administrative (SI&A) expenses declined 2% to $3.5 billion during the quarter. R&D expenses increased 13% to $1.7 billion.

Maintains Earnings Outlook but Cuts Revenue Guidance

Pfizer maintained its earnings outlook for 2014 at $2.20 - $2.30 per share but cut its revenue guidance to $48.7 billion - $50.7 billion (old guidance: $49.2 billion - $51.2 billion) reflecting the impact of the genericization of Celebrex from Dec 2014. The Zacks Consensus Estimate for earnings and revenues is currently $2.25 per share and $49.2 billion, respectively.

Pfizer expects SI&A spend of $13.3 billion to $14.3 billion (old guidance: $13.5 billion - $14.5 billion) and R&D spend of $6.7 billion to $7.2 billion (old guidance: $6.4 billion - $6.9 billion). SI&A spend is expected to be lower due to a cut in promotional efforts for Celebrex from the second half of the year.

R&D guidance was increased to reflect the impact of the planned $80 million upfront payment to Cellectis as well as higher expenses related to the planned acceleration of late-stage clinical programs, including for palbociclib and bococizumab.

Meanwhile, Pfizer, which repurchased shares worth $2.9 billion through Jul 28, expects to buy back shares worth $5 billion in 2014.

Our Take

Pfizer's second quarter results were better-than-expected with the company beating on both earnings and revenues despite the presence of generic competition. However, the company's top-line remains under pressure as later this year Celebrex generics are expected to enter the market.

We believe genericization and the expiration of a few co-promotion agreements will continue to hamper top-line growth. However, cost-cutting efforts and share buybacks should help Pfizer achieve its earnings guidance. Expectations remain high that Pfizer will resume its efforts to acquire AstraZeneca AZN.

Pfizer is a Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the health care sector include Allergan AGN, AstraZeneca and AbbVie ABBV. While Allergan is a Zacks Rank #1 (Strong Buy) stock, AstraZeneca and AbbVie hold a Zacks Rank #2 (Buy).

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