Actavis Beats on Earnings

Zacks

Actavis, Inc.’s (ACT), formerly known as Watson Pharmaceuticals, Inc., fourth quarter 2012 earnings (excluding special items) of $1.59 per share beat the Zacks Consensus Estimate of $1.53 but was 10.2% below the year-ago earnings of $1.77 per share.

The fourth quarter 2011 earnings benefited from the launch of its generic version of Pfizer’s (PFE) Lipitor. Revenues for the reported quarter came in at approximately $1.8 billion, up 13% from the year-ago figure, edging past the Zacks Consensus Estimate of $1.7 billion.

For 2012, earnings increased 26% from the year-ago period to $6.00 per share beating the Zacks Consensus Estimate of $5.94 per share. Full year 2012 revenues increased 29% year over year to $5.9 billion. Revenues were in line with the Zacks Consensus Estimate.

Full year 2012 earnings were above Actavis’ earlier issued guidance whereas revenues matched the same. In Jan 2013, the company had projected 2012 earnings on the higher end of its guidance range of $5.85 to $5.95, on revenues of $5.9 billion.

Quarterly Details

Actavis operates through three segments: Actavis Pharma (formerly Global Generics), Actavis Specialty Brands (formerly Global Brands) and Anda Distribution.

The company’s Actavis Pharma segment posted sales of $1.4 billion, up 21%. The upside was driven by new product launches including the generic versions of Xopenex, Lovenox and Adderall XR in the US. International revenues were strong at $524.7million, up 245%.

Actavis Specialty Brands revenues came in at $132.2 million, up 9%. Increased contributions from products like Rapaflo and Generess Fe and inclusion of Kadian revenues as a result of Actavis acquisition aided the performance of the segment.

Net revenues from the Anda Distribution segment decreased 19% during the quarter to $203.9 million. The decrease was due to lower chain sales. This segment consists of only third-party product sales.

Background

We remind investors that Actavis, Inc. in its current form came into existence in Oct 2012 following the acquisition of Actavis Pharma by the then known as Watson Pharma for €4.25 billion.

With this acquisition, the company has become the third largest generic pharmaceutical company in the world. Actavis expects to generate annual cost (SG&A, R&D, corporate, purchasing and raw material supply) synergy savings of $300 million within three years.

Outlook for 2013

Actavis continues to expect to earn $7.70 - $8.10 per share on total revenues of about $8.1 billion in 2013. The Zacks Consensus estimate is currently pegged at $8.08 per share on revenues of $8.1 billion in 2013.

Actavis Pharma, the company’s global generics business, is expected to post revenues of $6.3 billion - $6.5 billion in 2013. Actavis' global brands business, Actavis Specialty Brands, is slated to post revenues of $550 million - $600 million in 2013. The Anda Distribution segment is expected to post revenues of $1.0 billion - $1.2 billion.

Our Take

We believe the company should be able to achieve its guidance easily. With fewer major patent expiries slated to occur in the next few years, we are encouraged by Actavis’ focus on building its branded and biosimilars pipeline.

Actavis currently carries a Zacks Rank #3 (Hold). Other generic players like Mylan (MYL) currently look better positioned with a Zacks Rank #2 (Buy). Meanwhile, in the pharma space, Valeant Pharma (VRX) has a Zacks Rank #1 (Strong Buy).

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