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Dow-30 Earnings: Pfizer - Fourth Quarter 2013
Pfizer (PFE – Free Pfizer Stock Report), the world's largest drugmaker and a Dow-30 component, has reported fourth-quarter earnings of $0.39 a share, versus $0.85 in the comparable period of 2012. The steep year-over-year decline in profits was largely attributable to discontinued operations related to the divestiture of the company's Animal Health and Nutrition units, which included a gain on the sale of the Nutrition business in the year-earlier quarter. Adjusted earnings, which exclude one-time gains, charges, and other nonrecurring items, came in at $0.56 a share, versus $0.46 in 2013. The adjusted figure exceeded consensus expectations, which called for earnings of $0.52, thanks to increased cost cutting and a lower tax rate. Wall Street seemed pleased with the overall performance, and normally sedate Pfizer stock rose nicely in late-morning trading.
In the fourth quarter, total revenues declined 10% year over year, to $13.6 billion (calculations are against the originally reported figures), continuing a downward trend that dates back to the fourth quarter of 2011. While management has made progress over this time in terms of franchise development and the pipeline, intense generic erosion on several key products continued to have an unfavorable impact on the top line. Indeed, LIPITOR sales declines have been well documented since the drug lost patent protection two years ago, but in the most recent quarter, pressure mounted due to the generic availability of VIAGRA in most European markets. Sales of the erectile dysfunction pill plummeted 14% across all markets, which included a 32% decline on the international stage. Positively, double-digit growth in Pfizer's top-grossing franchise LYRICA (+11%) helped to partially mitigate the impact on the top line.
Looking ahead, we see several potential drivers that could signal a brighter outlook for Pfizer in 2014. With the brunt of the LIPITOR impact now in the rear view mirror (represents less than 5% of total revenues), we look for top-line comps to turn positive in the coming quarters. In addition to solid momentum in the LYRICA franchise, the company boasts a healthy pipeline and a surging oncology business that should help to support this assumption. Although still in its infant stages, Pfizer's oncology unit saw its revenues grow 29% in the fourth quarter, thanks to solid uptake of new products, most notably INLYTA (+117% to $102 million) and XALKORI (+98% to $89 million) in several major markets. Given the high-growth potential of these candidates, oncology is poised to become an increasingly meaningful component for Pfizer in the coming years. Perhaps, a little further down the road, it could produce the company's next blockbuster drug.
For 2014, management released its GAAP earnings guidance of $1.57-$1.72 a share, and adjusted earnings of $2.20-$2.30 a share. The guidance reflects revenue projections of $49.2 billion-$51.2 billion, SI&A expenses of $13.5 billion-$14.5 billion, R&D expenses of $6.4 billion-$6.9 billion, and an effective tax rate of approximately 27%. In adherence, we have trimmed our GAAP earnings target from $1.85 a share to $1.70 and our revenue estimate from $52 billion to $51 billion. As a reminder to investors, Pfizer will be restructuring its commercial operations beginning in the first quarter of 2014. The commercial business will be comprised of three divisions with one focused on products losing patent protection, another handling drugs with years of exclusivity remaining, and the third for vaccines, cancer treatments, and consumer products.
All told, our investment thesis for Pfizer remains largely intact since our January 10th full-page report. Pfizer is a relatively safe bet in the pharmaceutical space due to its strong financials and decent fundamentals, sizable share in most markets, and impressive track record. Its ongoing commitment to returning value to shareholders through stock repurchases and dividend payouts is also a key positive. For investors seeking an attractive and well-defined total return play with relative stability, high-quality Pfizer stock has an above-average dividend yield and a top rank for Safety (1). The company's Financial Strength (A++) is also top notch.
About The Company: Pfizer is a major producer of pharmaceuticals, hospital products, consumer products, and animal health lines. Important product names include NORVASC (cardiovascular); ZOLOFT (antidepressant); ZITHROMAX (antibiotic); LIPITOR (cholesterol); ARICEPT (Alzheimer’s); CARDURA (cardiovascular); DIFLUCAN (antifungal); ZYRTEC (antihistamine); VIAGRA (impotence); and CELEBREX (rheumatoid arthritis and osteoarthritis). International sales accounted for about 61% of total sales in 2012.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.