A month has gone by since the last earnings report for Allergan (AGN). Shares have added about 1.8% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Allergan due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Allergan’s Q2 Earnings & Sales Top, 2019 Sales View Up
Allergan beat estimates for both earnings and sales in the second quarter and raised its sales guidance for the year.
Allergan second-quarter adjusted earnings came in at $4.38 per share, which beat the Zacks Consensus Estimate of $4.34 and came within the guidance of $4.20 and $4.40. Earnings however declined 0.9% year over year due to lower operating profits.
Revenues came in at $4.09 billion, which exceeded the Zacks Consensus Estimate of $3.94 billion as well as the guidance of $3.88 billion to $4.03 billion. Revenues fell 0.8% from the year-ago period primarily due to currency headwinds. Excluding the impact of currency, total revenues rose 1.2% as higher sales of key products like Botox (cosmetic and therapeutics), Juvéderm collection of fillers, Vraylar, Ozurdex, and Lo Loestrin made up for the loss of exclusivity on some brands and divestitures of some others in 2018.
Moreover, sales of Restasis also declined in the quarter, ahead of anticipated generic competition. Also, decline in textured breast implants due to a global recall hurt sales.
Allergan reports revenues under three segments – U.S. General Medicine, U.S. Specialized Therapeutics and International.
U.S. Specialized Therapeutics’ net revenues declined 2.3% to $1.79 billion. Strong sales growth of its facial aesthetics products, Botox and Juvéderm and Botox Therapeutic was offset by decline in sales of Restasis and divestiture of Medical Dermatology business in September 2018. Sales of CoolSculpting and breast implants also declined in the quarter.
In Facial Aesthetics, Botox (cosmetic) raked in sales of $252.4 million, up 6.7% year over year. Juvéderm collection of fillers rose 12% to $156.6 million.
Alloderm sales, however, fell 5.5% to $101.2 million while CoolSculpting sales of $78.9 million declined 27.1% year over year.
In Eye Care, while Ozurdex sales rose 8.3% to $29.9 million, Restasis sales fell 2.3% to $310.9 million.
Botox Therapeutic revenues were $447.0 million, up 5.9% year over year.
U.S. General Medicine net revenues were up 10.3% year over year to $1.46 billion in the reported quarter as strong growth of Vraylar, Viibryd, Linzess and Lo Loestrin was offset by lower sales of drugs that lost exclusivity.
Linzess sales rose 2.2% to $196.0 million. Lo Loestrin sales grew 13.8% to $145.5 million while Bystolic sales rose 1.6% to $150.5 million. Vraylar sales were $196.1 million in the second quarter, 71.7% higher than the year-ago quarter, while Viibryd sales were $107.8 million, up 24.3% from the year-ago quarter. In May, Vraylar was approved for the new indication of bipolar depression, which may have contributed to higher sales of the drug in the quarter.
The International segment recorded net revenues of $847.7 million, down 4.3% from the year-ago period, excluding the impact of foreign exchange as growth in Facial Aesthetics and Ozurdex implant was partially offset by regulatory changes for textured breast implants and lower glaucoma and eye drop revenues.
Adjusted gross margin declined 70 basis points (bps) in the quarter to 84.7%. Adjusted operating income decreased 6.3% to $1.85 billion in the second quarter due to lower revenues and higher costs.
Selling, general and administrative expenses increased 2.5% to $1.16 billion in the second quarter, owing to higher marketing spending in Medical Aesthetics and for product launches.
Research and development (R&D) expenses rose 14.9% to $447.0 million due to pipeline progress.
Allergan slightly raised its sales guidance for 2019, mainly benefiting from delayed generic entry of Restasis while maintaining the previously issued earnings view.
Allergan expects sales to be in the range of $15.43-$15.63 billion, up from the previous guidance of $15.13-$15.43 billion. The company still estimates its adjusted earnings to be more than $16.55 per share. Adjusted tax rate is expected to be approximately 13% in 2019 versus 13%-13.5% expected previously. Adjusted R&D expense guidance was maintained in the range of approximately $1.6 - $1.7 billion while the SG&A range was increased from approximately $4.1 - $4.3 billion to approximately $4.4 - $4.5 billion. Adjusted gross margin is expected to be approximately 85%-85.5% (maintained).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
At this time, Allergan has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Allergan has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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