New York-based drugmaker and Dow-30 component Pfizer (PFE – Free Pfizer Stock Report) reported second-quarter earnings of $0.65 a share, versus $0.51 in the comparable period of 2017. The year-over-year improvement was driven primarily by reduced taxes (-12%) and higher revenues (+4%), partially offset by increased costs tied to production (+10%) and SG&A (+3%). Meantime, adjusted earnings, which exclude one-time gains, charges, and other nonrecurring items, and are more closely followed by Wall Street, came in at $0.81 a share versus $0.67 in 2017. The adjusted tally surpassed consensus expectations of $0.74 a share, as stronger demand in several core franchises helped fuel a solid top-line beat. Management responded with a modest boost to its full-year adjusted earnings outlook (now $2.95-$3.05 a share). PFE stock was trading a few percentage points higher on the release.
In the June period, worldwide revenues advanced 4% year over year, to $13.47 billion, representing the fourth-consecutive quarter of top-line growth. Moreover, the figure exceeded the consensus target of $13.3 billion, with much of the upside coming from rheumatoid arthritis drug XELJANZ (+37%) and aging cholesterol-fighting medication LIPITOR (+17%). Pfizer also saw decent gains in its top-two grossing franchises, PREVNAR (+8%) and LYRICA (+3%), and more significant growth in #3 IBRANCE (+20%) and #4 ELIQUIS (+47%). The four drugs combined for roughly 32% of Q2 revenues, and more than offset continued generic erosion in mature assets VIAGRA and ENBREL. Despite the solid top-line showing, management lowered its full-year revenue guidance to $53.0 billion-$55.0 billion (previously $53.5 billion-$55.5 billion), citing the impact of the stronger dollar. On a side note, Pfizer also indicated that it would defer price hikes on around 40 of its drugs for no more than six months, a decision that came after a meeting between CEO Ian Read and President Donald Trump.
The new tax law provided a nice tailwind to profitability in the second quarter, and should continue to fuel healthy comp growth in the back half of the year (management recently lowered its 2018 effective tax rate guidance from 17%, to 16%). While there have been a few speed bumps on the product side, particularly in the oncology space, the top end of Pfizer's portfolio is performing well and we are currently targeting a 4% increase in revenues for full-year 2018. We anticipate much of the growth to come from its top cancer asset IBRANCE, blood thinner medication ELIQUIS, and the above-mentioned momentum in RA drug XELJANZ. We wouldn't be surprised if management turned to M&A as another avenue to bolster the portfolio, especially if it is successful in finding a buyer for its consumer healthcare unit, which some believe could fetch as much as $20 billion. Longer-term, Pfizer's pipeline is well stocked with late-stage assets across several core therapeutic areas. Management sees opportunity for 25-30 approvals through 2020, of which 15 have blockbuster potential.
All told, we continue to view Pfizer as an attractive core holding within the large pharma group. 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.
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 includeLYRICA (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.
- Michael Ratty
