Earnings Beat for Pfizer in 3Q, Updates Outlook

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Pfizer Inc. (PFE) posted third quarter 2013 earnings of 58 cents per share, a couple of cents above the Zacks Consensus Estimate and 16% above the year-ago earnings. Revenues, which declined 2% to $12.643 billion, were just shy of the Zacks Consensus Estimate of $12.661 billion.

Revenue growth was impacted by the loss of exclusivity of certain products including Lipitor, the expiry of the Spiriva collaboration in some countries, and purchasing patterns for Prevnar and Enbrel in some emerging markets.

The Quarter in Detail

While foreign exchange cut third quarter revenues by $272 million or 2%, operational factors impacted revenues negatively by $310 million or 2%.

International revenues declined 4% to $7.5 billion. Meanwhile, U.S. revenues remained flat at $5.2 billion.

Biopharmaceutical products delivered third quarter revenues of $11.7 billion, down 3%. While the Primary Care, Established Products and Specialty Care units recorded a decline in revenues, Oncology, Emerging Markets and Consumer Healthcare posted an increase in revenues.

The Primary Care unit recorded a 10% decline in revenues, which came in at $3.3 billion. Factors like the shifting of Lipitor and other products that lost exclusivity to the Established Products unit, the Dec 2012 termination of the co-promotion agreement for Aricept in Japan and lower share in Spiriva revenues in certain regions and the termination of the Spiriva collaboration in other regions led to the decline. However, Lyrica continued to perform well with sales coming in at $1.1 billion, up 10%. Other products that performed well in the U.S. include Celebrex ($508 million, up 16%), Chantix ($82 million, up 32%), EpiPen ($67 million, up 29%), Premarin ($254 million, up 7%) and Pristiq ($134 million, up 12%).

Specialty Care segment sales declined 2% to $3.3 billion. The segment was impacted by the shift in the reporting of Geodon and Revatio revenues in the U.S. and Xalabrands revenues in developed Europe and Australia.

Established Products revenues declined 4% to $2.3 billion due to the presence of several generic versions of Lipitor and competitive and pricing pressure.

Lipitor was hit hard by the loss of exclusivity in the U.S. Pfizer saw Lipitor revenues fall 59% to $78 million in the U.S. Generic competition increased with the entry of additional players in the market.

The third quarter saw revenues from Emerging Markets growing 2% to $2.4 billion mainly due to volume growth in China. The company, however, reported lower government purchases of Prevnar and Enbrel and government cost-containment measures in some other emerging markets. Pfizer expects the Emerging Markets segment to deliver mid single-digit operational revenue growth in 2013.

Consumer Healthcare revenues increased 1% to $788 million benefiting from strong growth of Centrum and Emergen-C. Oncology sales increased 24% to $407 million with performance being driven by Inlyta ($83 million) and Xalkori ($73 million) in several key markets.

While Inlyta continues to benefit from positive patient feedback and pricing and reimbursement in developed Europe, Pfizer reported an increase in Xalkori scrips and new patient starts.

Selling, informational and administrative (SI&A) expenses declined 3% to $3.4 billion during the quarter. R&D expenses fell 12% to $1.6 billion. Pfizer should realize cost savings due to workforce reductions, actions taken with the R&D portfolio, as well as savings from a smaller physical footprint.

Outlook Updated

Pfizer updated certain aspects of its outlook for 2013. Pfizer now expects earnings of $2.15 - $2.20 per share on total revenues of $50.8 billion - $51.8 billion. Earlier, the company was guiding towards earnings of $2.10 - $2.20 per share on total revenues of $50.8 billion - $52.8 billion. Pfizer now expects SI&A spend of $14.2 billion - $14.7 billion (old guidance: $14.2 billion to $15.2 billion) and R&D spend of $6.3 billion - $6.6 billion (old guidance: $6.1 billion to $6.6 billion). The Zacks Consensus Estimate of earnings of $2.17 per share and revenues of $51.5 billion is within the company’s guidance range.

Meanwhile, the company repurchased shares worth $13.1 billion this year.

Pfizer currently carries a Zacks Rank #3 (Hold). Pfizer’s third quarter results were mixed with earnings slightly above expectations and revenues just shy of expectations. We believe revenues will remain under pressure due to genericization and the expiration of a few co-promotion agreements. However, cost-cutting efforts and share buybacks should help the company achieve its earnings guidance.

At present, Roche (RHHBY), Bayer (BAYRY) and Johnson & Johnson (JNJ) look well-positioned. While Roche is a Zacks Rank #1 (Strong Buy) stock, Bayer and Johnson & Johnson are Zacks Rank #2 (Buy) stocks.

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