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Pfizer (PFE) Down 11.5% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Pfizer (PFE). Shares have lost about 11.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Pfizer due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Pfizer Beats on Q2 Earnings, Misses Sales, Lowers 2019 Outlook

Pfizer posted mixed results for the second quarter of 2019. While it beat earnings estimates, it fell short of the consensus mark for revenues. The company lowered its guidance for full-year earnings and sales.

Second-quarter 2019 adjusted earnings per share of 80 cents beat the Zacks Consensus Estimate of 77 cents. Earnings rose 4% year over year driven by higher revenues on an operational basis, lower cost of sales and reduced share count. Currency changes had a negative impact of 3 cents per share on adjusted earnings.

Revenues of $13.26 billion missed the Zacks Consensus Estimate of $13.32 billion. Revenues declined 2% from the year-ago quarter on a reported basis. On an operational basis, excluding the 4% negative impact of currency, revenues rose 2% year over year as higher sales of some key brands in Pfizer’s Biopharmaceuticals group was partially offset by generic/biosimilar competition for products that have lost marketing exclusivity and decline of Upjohn revenues in China.

International revenues declined 4% to $6.93 billion. However, on an operational basis, international sales rose 3% in the quarter. U.S. revenues were up 2% to $6.34 billion.

Adjusted selling, informational and administrative (SI&A) expenses rose 2% (operationally) in the quarter to $3.46 billion. Adjusted R&D expenses rose 3% to $1.83 billion.

Segment Discussion

In 2018, Pfizer’s reporting segments were Pfizer Innovative Health (IH) and Pfizer Essential Health (EH). Beginning the first quarter of 2019, Pfizer started reporting under three new business units — Pfizer Biopharmaceuticals Group (previous IH unit except Consumer Healthcare), Upjohn (previous EH unit) and Consumer Healthcare.

Pfizer Biopharma sales grew 2% on a reported basis (up 6% an operational basis) from the year-ago period to $9.6 billion. Higher sales of brands like Eliquis, Ibrance and Xeljanz, biosimilars and a strong emerging markets performance (up 12%) drove this segment’s sales growth. Weaker sales of Prevnar 13/Prevenar 13 and Enbrel internationally and product supply shortages in the hospital business partially offset the increase.

Within the Biopharma group, Oncology revenues increased 23% to $2.24 billion. Vaccine revenues rose 2% to $1.38 billion. Internal Medicine rose 6% to $2.33 billion. The Inflammation & Immunology franchise rose 5% to $1.22 billion. However, the portfolio of Rare Disease declined 2% to $521 million. The newly added Hospital sub-segment’s sales declined 4% to $1.91 billion. The Hospital segment comprises Pfizer’s global portfolio of sterile injectable and anti-infective medicines. In the sterile injectables business, manufacturing supply constraints continue to impact Pfizer’s sales.

Pfizer’s Upjohn group’s sales declined 11% on reported basis to $2.81 billion. On an operational basis, sales declined 7% in the segment due to lower revenues in China and the United States. China revenues were hurt by volume-based procurement reforms that were implemented in March 2019 while in the United States, sales were hurt by lower revenues for Viagra.

Revenues from the Consumer Healthcare unit declined 3% to $862 million. However, on an operational basis, sales rose 1% as lower sales in the U.S. market were offset by higher sales in international markets.

Performance of Key Drugs

Ibrance revenues rose 27% year over year to $1.26 billion on continued strong uptake in developed Europe and Japan as well as in certain emerging markets and consistent growth in the United States.

Xeljanz sales rose 36% to $613 million driven by continued growth in rheumatoid arthritis (RA) revenues and contributions from the drug's recent expansion into psoriatic arthritis and ulcerative colitis in the United States and only ulcerative colitis indication in certain developed markets.

In July, Xeljanz’s prescribing information in the United States was updated by the FDA to include two additional boxed warnings as well as changes to the indication and dosing for UC following review of a post-marketing study. Regarding this update, Pfizer mentioned on the call that the label update may have some negative impact on prescribing and hurt sales in the future quarters.

Global Prevnar 13/Prevenar 13 revenues declined 3% to $1.18 billion. Prevnar 13 revenues declined 10% in the United States, reflecting decreased government purchases for the pediatric indication and continued decline in revenues for the adult indication. Prevenar 13 revenues rose 6% in international markets.

Meanwhile, due to some unfavorable revisions in ACIP's pneumococcal vaccination guidelines for Prevnar 13 in adults in the United States, Pfizer expects some decline in demand for Prevnar, which can hurt sales in the future quarters.

Enbrel revenues declined 16% to $420 million in key European markets due to continued biosimilar competition as well as unfavorable timing of government purchases in certain emerging markets.

Xalkori sales rose 2% to $133 million. Sutent sales declined 4% to $248 million. Inlyta revenues increased 34% to $104 million. Eliquis alliance revenues and direct sales rose 26% to $1.09 billion. Chantix sales rose 1% to $276 million in the quarter. Xtandi recorded alliance revenues of $201 million in the quarter, up 18% year over year.

Revenues from the biosimilars portfolio grew 20% operationally to $217 million in the quarter. Inflectra recorded sales of $53 million globally, flat year over year. New biosimilar product, Retacrit, a biosimilar of Epogen and Procrit, is off to a good start in the United States, recording $30 million of revenues in the second quarter.

In the Upjohn segment, sales of key drug Lyrica declined 1% to $1.18 billion reflecting wholesaler destocking ahead of the drug’s loss of exclusivity, which began in July. Viagra sales declined 35% to $114 million due to generic competition that began in December 2017.

2019 Guidance

Pfizer lowered its previously issued sales and earnings guidance for 2019 to reflect the formation of the Consumer Healthcare JV with Glaxo and the completion of Array BioPharma and Therachon acquisitions. Other than pending business development activity, incremental negative impact of foreign exchange and unfavorable product developments in case of Prevnar and Xeljanz also contributed to the guidance cut.

Revenues are expected in the range of $50.5 billion to $52.5 billion compared with $52.0 billion to $54.0 billion expected previously. Adjusted earnings per share are expected in the range of $2.76-$2.86 versus the previous expectation of $2.83-$2.93.

For the remainder of the year, the consumer JV with Glaxo is expected to have a negative impact of 3 cents on adjusted EPS. The Array and Therachon acquisitions will hurt the same by 4 cents per share. Foreign exchange is expected to have a unfavorable impact of $1.2 billion on revenues and 8 cents on adjusted EPS for the year, which represents more onerous negative impact than guided previously.

Research and development expense is expected in the range of $7.9–$8.3 billion versus $7.8–$8.3 billion while SI&A spending is projected in the range of $13.0–$14.0 billion versus $13.5 –$14.5 billion expected earlier. Adjusted tax rate is still expected to be approximately 16% in 2019.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -8.15% due to these changes.

VGM Scores

At this time, Pfizer has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Pfizer has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.



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