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Pfizer (PFE) Q1 Earnings Beat, Sales Lag, 2017 View Intact

Pfizer, Inc. PFE reported first-quarter 2017 adjusted earnings per share of 69 cents, which beat the Zacks Consensus Estimate of 67 cents by 3%.

Earnings also rose 3% year over year as lower costs offset a soft top-line performance.

On the other hand, revenues missed expectations. The pharma heavyweight posted revenues of $12.78 billion, which fell short of the Zacks Consensus Estimate of $13.04 billion. Again, revenues declined 2% from the year-ago period. Fewer selling days compared with the year-ago quarter hurt results in the first quarter.

Sales in Detail

While currency movement impacted Pfizer’s first-quarter revenues by 1% ($116 million), operational decline was 1% ($110 million).

In Feb 2017, Pfizer sold its Hospira infusion systems (HIS) business to ICU Medical, Inc. ICUI for up to approximately $900 million. Excluding HIS revenues, sales rose 1% on an operational basis.

Lower sales of Enbrel and the Prevnar/Prevenar 13 vaccines franchise and loss of exclusivity for some products  offset strong performance of key products like Ibrance (breast cancer), Lyrica (neuropathic pain) and Xeljanz (rheumatoid arthritis).

International revenues declined 3% (1% on an operational basis) to $6.14 billion. Meanwhile, U.S. revenues were flat at $6.64 billion.

Segment Discussion

From the second quarter of 2016, Pfizer reorganized its reporting segments to Pfizer Innovative Health (IH) and Pfizer Essential Health (EH).

Pfizer IH sales grew 5% (up 6% operationally) from the year-ago period to $7.42 billion.

Pfizer IH revenues were driven by persistently strong momentum of Ibrance and Eliquis globally, and growth of Lyrica and Xeljanz primarily in the U.S. While Lyrica sales rose 12% to $1.13 billion, Xeljanz rose 27% to $250 million.

Revenues from the blockbuster prostate cancer drug Xtandi, added to Pfizer’s portfolio following the Sep 2016 Medivation acquisition, also propelled U.S. revenues. Xtandi recorded alliance revenues of $131 million in the quarter.

This was partially offset by continued decline in revenues from Prevnar 13 in both U.S. and international markets and lower revenues of Enbrel (down 20%) in key European markets due to biosimilar competition. Pfizer has exclusive rights to Amgen, Inc.’s AMGN blockbuster rheumatoid arthritis (RA) drug, Enbrel, outside the U.S. and Canada.

Prevnar revenues tanked 9% in the U.S. due to “high initial capture rate” of the eligible adult patient population following Prevnar-13’s successful 2014 launch. This resulted in a smaller remaining “catch up” opportunity in the first quarter compared to the year-ago quarter.

While Consumer Healthcare revenues rose 3% to $848 million, Global Oncology revenues surged 35% to $1.35 billion driven by Ibrance. Ibrance revenues rose 58% to $679 million in the quarter.

Global Vaccine revenues declined 7% to $1.47 billion. While Internal Medicine rose 12% to $2.38 billion, the Inflammation & Immunology franchise declined 8% to $871 million. Additionally, the portfolio of Rare Disease declined 11% to $507 million.

Pfizer EH segment sales recorded a decline of 10% (down 9% operationally) to $5.36 billion.

EH revenues were hurt by the loss of exclusivity and associated generic competition for products like Zyvox, Celebrex, Lyrica; lower revenues from legacy Hospira products and decline in HIS revenues.

Pfizer launched Inflectra, a biosimilar version of Johnson & Johnson (JNJ) and Merck & Co., Inc.’s MRK blockbuster RA drug Remicade, in November last year. While Inflectra recorded sales of $17 million in the U.S. and $78 million globally, all other biosimilars brought in sales of $27 million (down 12%) from outside the U.S. markets.

Adjusted selling, informational and administrative (SI&A) expenses declined 2% during the quarter to $3.29 billion. Adjusted R&D expenses declined 1% to $1.70 billion.

2017 Guidance Re-Affirmed

Pfizer’s re-affirmed its guidance for 2017. Revenues are expected in the range of $52 billion to $54 billion.

Adjusted earnings per share are expected in the range of $2.50–$2.60. The Zacks Consensus Estimate stands at $53.11 billion and $2.55 per share for sales and earnings, respectively.

At the mid-point, revenues are expected to be slightly above 2016 level, while adjusted EPS is expected to increase 6%. Excluding negative impacts of the disposition of HIS and foreign exchange, revenues and earnings are expected to record operational growth of 4% and 10%, respectively.

R&D expenses are expected in the range of $7.5–$8.0 billion, while SI&A spending is projected in the range of $13.7–$14.7 billion.

Our Take

Like most other pharma/biotech giants, Pfizer also had a mixed first quarter as it beat earnings estimates but missed the same on sales. Shares declined less than 1% in pre-market trading. Pfizer’s shares are up 3.9% so far this year, compared with an increase of 6.7% for the Zacks classified Large-Cap Pharma industry.

Pfizer continues to face headwinds in the form of genericization of key drugs, lost alliance revenues, pricing pressure and rising competition. Nonetheless, we believe that new product sales, contribution from acquisitions, cost-cutting efforts and share buybacks should help the company achieve its guidance.

Investor focus will remain on the stock as Pfizer has several key pipeline milestones in 2017.

So far this year, Pfizer has announced quite a few regulatory approvals for its pipeline drugs/label expansions for marketed drugs. This year, Pfizer announced marketing approvals for Xeljanz in the EU and China; said that Ibrance’s accelerated approval was converted to regular approval and announced accelerated FDA approval for Bavencio/avelumab for the treatment of metastatic Merkel cell carcinoma (MCC), a rare and aggressive form of skin cancer.

Pfizer carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Pfizer, Inc. Price, Consensus and EPS Surprise

 

Pfizer, Inc. Price, Consensus and EPS Surprise | Pfizer, Inc. Quote

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