Valeant Rises on Earnings Beat, Progress on Debt Repayment
- By Sydnee Gatewood
Recovering from its prolonged legal troubles, Valeant Pharmaceuticals International Inc. (VRX) reported second-quarter earnings before the opening bell on Aug. 8.
The Canadian pharmaceutical company posted earnings per share of $1.05, beating estimates of 94 cents. Revenue of $2.23 billion was in line with expectations but down 8% from the year-ago quarter.
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The graph below illustrates the trend in Valeant's revenue over the past 10 years.
The company attributed its earnings performance to sales of Xifaxan, a drug used to treat irritable bowel syndrome. Revenue was impacted by lower volumes in its U.S. diversified products segment and dermatology business. In addition, the divestiture of some of its businesses had an unfavorable effect on revenue.
Despite this decline, Chairman and CEO Joseph Papa said the company's investments in its core businesses are delivering positive results.
"The Bausch + Lomb/International segment and Salix business, which together represented 73% of our revenue in the quarter, delivered strong organic growth, and we are continuing to reduce debt and resolve legacy issues," Papa said.
The company, which has been under scrutiny for its accounting and pricing practices, also reported on its debt situation. Under former CEO Mike Pearson, Valeant's debt climbed to nearly $30 billion. In its earnings report, the pharmaceutical company said it expects to pay more than $5 billion in debt earlier than anticipated.
In addition, the company was able to pay off $811 million in debt using the proceeds from the sale of Dendreon Pharmaceuticals, its cancer treatment business. It has also agreed to sell its Obagi Medical Products business for $190 million and its iNova Pharmaceuticals business for $930 million. As of the end of June, the company had long-term debt of around $28.5 billion.
Valeant also lowered its revenue forecast for the year. It now expects full-year revenue of $8.7 billion to $8.9 billion, down from its previous guidance of $8.9 billion to $9.1 billion. Full-year guidance for earnings before interest, tax, depreciation and amortization (EBITDA) was maintained.
While the company appears to be getting back on its feet, John Engle, president of Almington Capital Inc., believes the prospect of Valeant returning to its former glory is unlikely.
"The real problem is that Valeant is not the same company it was when it was riding high, and the pharmaceuticals market isn't either," Engle said. "Valeant's core business model of buying drugs and profiting through incremental price increases has come under such intense scrutiny that any hope of returning to the 'good old days' seems far-fetched."
With 6.27% of outstanding shares, John Paulson (Trades, Portfolio) is the company's largest guru shareholder. In all, nine gurus own the stock.
After the announcement, Valeant shares soared around 10.3% to $16.96 in premarket trading.
Disclosure: I do not own any stocks mentioned.
This article first appeared on GuruFocus.
Warning! GuruFocus has detected 2 Warning Sign with VRX. Click here to check it out.
The intrinsic value of VRX
