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Allergan (AGN) Q4 Earnings Beat Estimates, 2019 View Tepid

Zacks Equity Research

Allergan plc’s AGN fourth-quarter 2018 earnings came in at $4.29 per share, which beat the Zacks Consensus Estimate of $4.15. However, earnings fell 11.7% year over year mainly due to lower revenues.

Revenues came in at $4.08 billion, which exceeded the Zacks Consensus Estimate of $3.98 billion. Revenues fell 5.7% from the year-ago period primarily due to loss of exclusivity of some brands. However, core business grew 8.3% during the quarter.

Key products like Botox, Juvéderm collection of fillers, Vraylar and Lo Loestrin partially offset the decline in sales of Restasis, Estrace and Namenda XR. Fourth-quarter revenues also benefited from higher revenues from Linzess and Lumigan.

Full Year Results

Earnings per share for the full year were $16.69, above the Zacks Consensus Estimate of $16.55 as well as the guided range of $16.20 to $16.60 per share. Earnings increased 2.1% year over year.

Full-year revenues were $15.79 billion, down 1% year over year. Revenues however beat the Zacks Consensus Estimate of $15.7 billion and exceeded the guided range of $15.575-$15.725 billion.

Segment Discussion

Allergan reports revenues under three segments – U.S. General Medicine, U.S. Specialized Therapeutics and International.

U.S. Specialized Therapeutics’ net revenues decreased 3.9% to $1.81 billion. Decline in sales of Restasis and loss of sales due to divestiture of Medical Dermatology business were partially offset by strong sales growth of its facial aesthetics products, Botox and Juvéderm.

In Facial Aesthetics, Botox (cosmetic) raked in sales of $258.1 million, up 13% year over year. Juvéderm collection of fillers rose 13.5% to $158.4 million.

Alloderm sales, however, fell 3.1% to $94.9 million while CoolSculpting sales, down 13.9%, added $81.3 million to sales.

In Eye Care, while Ozurdex sales rose 11% to $29.3 million. Restasis and Alphagan sales fell 18.8% and 4% to $325 million and $97.7 million, respectively. Restasis sales decreased due to lower selling price and demand. Botox Therapeutic revenues were $433.3 million, up 12.8% year over year.

U.S. General Medicine net revenues were down 8.4% year over year to $1.4 billion in the reported quarter hurt by lower sales of Namenda XR and Estrace, which were partially offset by strong growth of Vraylar, Linzess and Lo Loestrin.

Linzess, which was co-commercialized with Ironwood Pharmaceuticals IRWD, sales rose 5.3% to $205.2 million. Lo Loestrin sales grew 13.7% to $143.8 million while Bystolic sales fell 3.7% to $151.78 million. Vraylar sales were $150.5 million in the fourth quarter, 71.6% higher than the year-ago quarter, while Viibryd sales were $95.5 million, up 7.3% from the year-ago quarter.

Namenda XR sales slumped from $97.8 million to $10.7 million in the reported quarter due to generic competition following loss of exclusivity in February.

The International segment recorded net revenues of $870.2 million, up 1% from the year-ago period, excluding the impact of foreign exchange, driven by growth in Facial Aesthetics and Botox (therapeutic), partially offset by the unfavorable impact of Ozurdex recall.

Profits Rise

Adjusted operating income decreased 11.8% to $1.92 billion in the fourth quarter due to impact of divestitures, lower sales due to loss of exclusivity and a decline in Restasis.

Selling, general and administrative (SG&A) expenses increased 0.9% to $1.14 billion in the fourth quarter owing to higher marketing spending in Medical Aesthetics, partially offset by the impact of previous restructurings.

Research and development (R&D) expenses rose 7.5% to $436.1 million due to pipeline progress.

2019 Outlook

Allergan provided its earnings and sales guidance for 2019. Allergan expects sales to be in the range of $15.0-$15.3 billion. The guidance range is lower than the current Zacks Consensus Estimate of $15.4 billion. The company estimates its adjusted earnings to be equal or more than $16.36 per share.

Adjusted tax rate is expected to be approximately 13-13.5% in 2019. Adjusted R&D expenses are expected to be approximately $1.6 - $1.7 billion and SG&A spend is expected to be approximately $4.1 - $4.3 billion. Adjusted gross margin is now expected to be approximately 85%-85.5%.

In the first quarter of 2019, the company expects revenues to be in the range of $3.4 billion to $3.55 billion and earnings per share between $3.40 and $3.60. The Zacks Consensus Estimate for revenues and earnings per share is pegged at $3.61 billion and $3.66, respectively.

Our Take

Although Allergan beat estimates for both earnings and sales, the metrics declined from the year-ago period. The top and the bottom lines were hurt by loss of sales of several drugs including Restasis due to loss of exclusivity. Namenda XR and Estrace also lost significant sales. However, Botox continues to drive the top line along with Juvéderm and Linzess among others.

Meanwhile, the company’s sales outlook was far from encouraging. Moreover, the company expects lower sales to severely impact margins in the first quarter. However, it can be presumed that declining sales trend will stabilize in the later part of 2019 due to low base year effect.

Shares fell 3.7% in pre-market trading presumably on lower sales expectation for 2019. Allergan’s share price has fallen 13.7% in the past six months compared with the industry’s decline of 16.5%.

Zacks Rank & Stocks to Consider

Allergan currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A couple of better-ranked drug/biotech stocks include Bristol-Myers Squibb Company BMY and Novartis AG NVS. Both the stocks carry a Zacks Rank #2 (Buy).

Bristol-Myers’ earnings estimates for 2019 have risen from $4.06 to $4.16 over the past 60 days.

Novartis’ shares were up 2.2% in the past six months while earnings estimates have risen from $5.17 to $5.22 for 2019 over the past 60 days.

Allergan plc Price, Consensus and EPS Surprise


Allergan plc Price, Consensus and EPS Surprise | Allergan plc Quote

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