New York-based drugmaker and Dow-30 component Pfizer (PFE - Free Pfizer Stock Report) has reported first-quarter earnings of $0.51 a share, versus $0.49 in the comparable period of 2016. The bottom-line improvement was fueled primarily by reduced production costs (-13%) and, to a lesser extent, lower SG&A (-2%) and R&D (-1%) outlays, which helped mitigate a 2% year-over-year dip in sales. Meantime, adjusted earnings, which excluded one-time gains, charges, and other nonrecurring items, and are more closely followed by Wall Street, came in at $0.69 a share, versus $0.67 in 2016. The adjusted tally beat consensus expectations by a few pennies, but this appeared to be largely overshadowed by a sizable top-line miss, as shares of PFE are trading modestly lower on the release.
In the March period, total sales declined 2% year over year, to $12.78 billion. Management indicated that one less selling day in the United States and two in international markets compared to the first quarter of 2016 had a negative impact of roughly $300 million. Looking at the portfolio, the company's Innovative Health segment, which sells newer, patent-protected drugs, contributed sales of $7.42 billion, representing growth of 5% year over year. Comps benefited from continued strong growth in key assets IBRANCE (+58%) and ELIQUIS (+51%); the addition of XTANDI revenues, stemming from the Medivation acquisition in September; and increased contributions from XELJANZ (+27%) and number-two seller LYRICA (+12%). Further gains were mitigated, however, by continued fallout in the company's top-grossing PREVNAR vaccine franchise (-8%), overseas generic erosion on ENBREL (-20%), and weak domestic sales of fading blockbuster VIAGRA (-17%). Meanwhile, Pfizer's Essential Health segment, which sells older, mostly off-patent drugs, saw its sales decline 10% year over year, to $5.36 billion. This resulted primarily from a 25% decline in Peri-LOE Products and a 7% dip in the Legacy Established segment.
Following the first-quarter report, management reiterated its 2017 full-year adjusted earnings guidance of $2.50-$2.60 a share. The range reflects total sales of $52 billion-$54 billion, SG&A expenses of $13.7 billion-$14.7 billion, and R&D costs of $7.5 billion-$8.0 billion. We look for Pfizer's fast-growing oncology business (sales +35% in the March period), led by standout asset IBRANCE and recent acquisitions (Anacor and Medivation), to help support comps over the next several quarters. IBRANCE sales nearly tripled last year to $2.1 billion and peak estimates suggest this figure could reach as high as $5 billion. While the company shelled out roughly $20 billion for Anacor and Medivation in 2016, we would not be surprised if management executed another large-scale deal this year should some of the aforementioned portfolio pressures persist.
All told, we continue to view Pfizer as an attractive core holding within the large pharmaceutical space. The company has strong finances, high-grade fundamentals, and an impressive track record. An above-average dividend and expectations for continued stock repurchases should enhance shareholders value.
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.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
