New York-based drugmaker and Dow-30 component Pfizer (PFE – Free Pfizer Stock Report) reported third-quarter GAAP earnings of $1.36 a share, versus $0.69 in the comparable period of 2018. The sharp year-over-year improvement can be largely attributed to an $8.1 billion gain tied to the closing of the company's consumer health joint venture with GlaxoSmithKline. The comp received additional support from reductions in production and SI&A expenses, helping to offset a double-digit increase in R&D costs and lower revenues (more below). Meantime, adjusted earnings, which exclude one-time gains, losses, and other nonrecurring items, and are more closely followed by Wall Street, came in at $0.75 a share, versus $0.77 in Q3, 2018. The adjusted tally soared past consensus expectations looking for $0.62 on average, thanks in part to a roughly $300 million beat on the top line. Management responded by upping its full-year guidance, sending PFE shares several percentage points higher in Tuesday's trading session.
In the September period, worldwide revenues dipped 5% year over year, to $12.68 billion. However, the pullback was widely anticipated due to the recent patent expiration on nerve-pain medication LYRICA in the United States. While the franchise experienced significant sales losses in Q3 (-57% year over year) as a result of cheaper generics hitting the market, the impact was more than offset by better-than-expected gains in oncology drug IBRANCE (+25%) and rheumatoid arthritis treatment XELJANZ (+38%). In fact, the Q3 revenue tally beat consensus expectations calling for about $12.4 billion and management narrowed its 2019 guidance to $51.2 billion-$52.2 billion (previously $50.5 billion-$52.5 billion). It increased its adjusted earnings outlook to $2.94-$3.00 a share (previously $2.76-$2.86), citing recent operational improvement.
Pfizer is currently in the midst of a wide scale transformation effort designed to turn it into a leaner and more innovative medicines-focused drugmaker. Indeed, it recently shed its consumer healthcare business via the aforementioned JV with GSK, its UpJohn generics business is being spun off and merged with Mylan's (scheduled for mid-2020), and management has aggressively sought out M&A and development deals to bolster higher-margin areas of the portfolio (completed Array BioPharma acquisition in July).
Altogether, we are encouraged with the strategic direction and believe it better positions the company for sustainable long-term growth. With strong finances, high-grade fundamentals, and an impressive track record of returning value to shareholders, we continue to view Pfizer as a solid core holding in the large pharmaceutical space. The equity scores well across all of our proprietary risk metrics and also boasts an attractive dividend yield, making it a nice fit in conservative, income-oriented portfolios.
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.
– Michael Ratty
