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Novartis Beats on Revs, EPS In-Line

Zacks Equity Research

Swiss pharmaceutical giant Novartis (NVS) reported fourth quarter 2012 earnings per share of 84 cents, up 71% from the year-ago period. Fourth quarter 2012 core earnings per share came in at $1.27, up 3% from the year-ago period. Core earnings were in line with the Zacks Consensus Estimate.

Fourth quarter revenues of $14.8 billion were flat year over year. Revenues surpassed the Zacks Consensus Estimate of $14.3 billion. Foreign exchange negatively impacted fourth quarter revenues by 2%.

Full year 2012 earnings were $5.25 per share, down 5.75% year over year. The Zacks Consensus Estimate for 2012 stood at $5.26 per share. Revenues in 2012 declined 3% year over year to $56.7 billion. Revenues for 2012 were marginally above the Zacks Consensus Estimate of $56.3 billion.

Quarter in Detail

The Pharmaceuticals division recorded sales of $8.3 billion in the reported quarter, flat year over year.  Revenues were impacted by the Diovan patent expiration and generic competition for other key products.

Novartis products like Lucentis, Gilenya, Tasigna, Afinitor and Galvus continued to perform well. Revenues from newly launched products increased 17% year-over-year to $4.3 billion in the reported quarter.

In the fourth quarter, Novartis received EU approval for Bexsero (for MenB vaccine), Votubia (for kidney tumors associated with tuberous sclerosis) and Exjade (for iron overload in non-transfusion-dependent thalassemia). Ilaris for gouty arthritis, Jetrea for the treatment of vitreomacular traction (:VMT) and macular hole and Exelon Patch line extension were recommended for approval in the EU. Novartis received FDA approval for Flucelvax for seasonal influenza and Signifor for Cushing's disease.

The Alcon Division recorded revenues of $2.6 billion in the fourth quarter, up 6% driven by solid growth in all the three franchises, namely, Oncology Franchise, Primary Care Franchise and Speciality Care Franchise.

Sales from the Sandoz division increased 4% to $2.4 billion mainly driven by Fougera sales. Sales at the Vaccines and Diagnostics division declined 6% from the year-ago quarter to $628 million. Sales in the fourth quarter of 2011 benefited from higher pre-pandemic sales and diagnostics shipments.

Consumer Health sales at Novartis were down 11% from the prior-year quarter to $961 million. Sales continued to be affected by absence of shipments at Novartis’ Lincoln facility in Nebraska.

2013 Guidance

Novartis expects 2013 sales to be in line with 2012 at constant currency. Excluding the impact of generic competition, sales are expected to increase at least in the mid-single digits in 2013.

Novartis stated that generic competition could impact sales by $3.5 billion in 2013. As generic competition in 2014-2015 declines to roughly 2-3% of total revenues, sales growth in 2014 and 2015 is expected to be in the mid-single digits.

In 2013, sales of Pharmaceuticals are expected to decline in low-single digit primarily due to generic competition. Sales in Alcon, Sandoz, Vaccines and Diagnostics are expected to increase in the mid-to-high single-digit range in the year 2013. Sales in the Consumer Health division are expected to increase in the high single-digit range in the year 2013.

Our Recommendation

Novartis carries a Zacks Rank #3 (Hold). Large-cap pharma companies that currently look better-positioned include Eli Lilly (LLY), Bayer (BAYRY) and Novo Nordisk (NVO). All three are Zacks Rank #2 (Buy) stocks.

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