New York-based drugmaker and Dow-30 component Pfizer (PFE - Free Pfizer Stock Report)has reported fourth-quarter earnings of $0.13 a share, versus a loss of $0.03 a share in the comparable period of 2015. The year-over-year increase in profits was driven primarily by reduced spending on production (-6%) and SG&A (-12%), partially offset by higher R&D costs (+7%) and lower revenues (-3%). Meanwhile, adjusted earnings, which exclude one-time gains, charges, and other nonrecurring items, and are more closely followed by Wall Street, came in at $0.47 a share, versus $0.53 in 2015. The adjusted tally missed consensus expectations of $0.50, despite revenues being relatively in line. All told, Pfizer concluded full-year 2016 with GAAP earnings of $1.17 a share, up from $1.11 in 2015, and adjusted earnings of $2.40 a share, up from $2.20 in 2015. Shares of PFE rose modestly on the release.
In the December period, total sales fell 3% year over year, to $13.6 billion, ending a streak of four consecutive quarters of top-line growth. Management noted that four fewer selling days in the U.S. and three in international markets compared to the fourth quarter of 2015 had a negative impact of roughly $750 million. On the operating front, the company's Innovative Health segment, which sells newer, patent-protected drugs, contributed sales of $7.7 billion (+1%), driven by continued growth of IBRANCE, primarily in the U.S., ELIQUIS globally, the addition of XTANDI revenues stemming from the Medivation acquisition in September, and strong growth in the XELJANZ (+61%) and LYRICA (+11%) franchises. Further gains were mitigated however by a steep decline in PREVNAR vaccine sales (-24%), which management attributed to demand softness for the adult indication, and continued fallout in ENBREL (-22%) due to biosimilar competition. Meanwhile, the company's Essential Health segment, which sells older, mostly off-patent drugs, saw its sales decline 8% year over year, to $5.9 billion. This resulted from a 21% dip in Peri-LOE Products and a 3% decrease in Legacy Established Products, partially offset by a 2% increase in the Sterile Injectable Pharmaceuticals segment.
Following the Q4 report, management released 2017 guidance that seemed to be on par with what Wall Street was anticipating. The company expects adjusted earnings of $2.50-$2.60 a share on revenues of $52 billion-$54 billion, where analysts on average were targeting $2.56 a share on revenues of $54 billion. We expect Pfizer's fast-growing oncology business (sales +56% in 2016) will remain a key comp driver over the next several quarters, helping to offset generic pressures in some of its more mature franchises. We would not rule out the possibility of additional large-scale M&A activity as well, given the company's recent appetite. Pfizer acquired Hospira for $15 billion in September, 2015, Anacor Pharmaceuticals for $5 billion in June, 2016, and Medivation for $14 billion in September, 2016.
All told, we continue to view Pfizer as an attractive core holding within the large pharma space. The company has strong finances, high-grade fundamentals, and an impressive track record. An above-average dividend yield and expectations for continued stock repurchases should enhance shareholder value. The blue ship stock holds our Highest rank for Safety (1). The company's Financial Strength is also top notch (A++).
About The Company:Pfizer is a major producer of pharmaceuticals. The company is engaged in discovering, developing, and manufacturing of healthcare products. Important product names include LYRICA (nerve and muscle pain); PREVNAR (vaccine); ENBREL (arthritis, psoriasis, and more); IBRANCE (advanced breast cancer) and CELEBREX (osteoarthritis, rheumatoid arthritis). The company acquired injectable drugmaker Hospira in 2015 and medical devices producer Medivation in 2016.
