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Dow-30 Earnings: Pfizer - Third Quarter 2013
Pfizer (PFE - Free Pfizer Stock Report), the world's largest drugmaker and a Dow-30 component, has reported third-quarter GAAP earnings of $0.39 a share, versus $0.41 in the comparable period of 2012. Adjusted earnings, which exclude one-time gains, charges, and other nonrecurring items, came in at $0.58 a share, versus $0.50 in 2012. The adjusted tally modestly exceeded consensus expectations calling for a $0.56 tally, driven by effective cost cutting and stronger-than-expected growth in oncology drug sales. Following the release, management updated its full-year earnings guidance from a range of $3.07-$3.22 a share, to $3.05-$3.15, while narrowing its adjusted guidance from $2.10-$2.20 a share, to $2.15-$2.20. Wall Street seemed modestly pleased with the overall performance, with Pfizer stock edged up nearly 2% in morning trading.
It wasn't all positive news in the September period, however. Of note, total revenues declined 10% year over year, to $12.6 billion (calculations are against originally reported figures), continuing a downward trend that dates back to the fourth quarter of 2011. Indeed, Pfizer lost patent protection on Lipitor in November, 2011, the loss of which has been the key driver of top-line deceleration during that span. Despite another double-digit drop in Lipitor sales (-29%), and ongoing pressures on sales of Viagra (-11%) due to generics, solid gains in other core franchises helped to provide some much needed support during the period: Lyrica (+10%), Celebrex (+11%), and Enbrel (+4%).
In our view, the most significant bright spot of the third-quarter release came from the oncology segment, where sales increased 24%, to $407 million. Oncology has clearly become one of Pfizer's key priorities of late, highlighted by the recent introductions of Xalkori for lung cancer (sales up 92%, to $73 million) and Inlyta for kidney cancer (+186%, to $83 million). 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.
While generic pressures are likely to continue to challenge operations in the near term, we like the direction in which Pfizer is heading. In our view, management has done a nice job over the past few years, selling off its non-core businesses and focusing on effective cost management to create a leaner, more-efficient company. With the sale of its animal health and nutrition businesses now in the rear view mirror, Pfizer can focus primarily on what we see to be its bread and butter, creating innovative new drugs and vaccines for humans. As a reminder to investors, the company will be reorganizing its commercial operations to reflect this renewed game plan 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 will handle 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 October 11th full-page report. Pfizer is a relatively safe bet in the pharmaceutical space due to its strong financials and fundamentals, sizable share in most markets, and largely impressive track record. 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 a premier rating.
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.