Mylan’s (MYL) second quarter 2014 earnings (excluding special items) of 69 cents per share fell short of the Zacks Consensus Estimate by a penny. Earnings in the second quarter of 2014 however increased 1.5% from the year-ago quarter. The year-over-year rise was due to higher revenues. On a reported basis (including special items), second quarter 2014 earnings declined 30.4% to 32 cents per share.
Revenues climbed 8% to $1.84 billion, marginally short of the Zacks Consensus Estimate of $1.9 billion. Mylan recorded year-over-year growth on the back of strong sales in the Generics and Specialty segments.
Second Quarter in Details
Generics third-party net sales, derived from sales in North America, Europe and rest of the world, climbed 5% to $1.53 billion. Growth was 6% at constant currency. Segmental third-party net sales grew 3% to $736.6 million in North America. Though newly launched products performed well, sales in the region were adversely affected by sales of existing products due to unfavorable pricing and volume.
Third-party net sales from the European market improved 10% to $395.9 million aided by favorable foreign currency movements. Third party net sales from rest of the world rose 6% to $396 million. Segmental performance improved on the back of increased sales of its antiretroviral products in India. Japanese performance was also strong during the quarter. Excluding the impact of foreign currency movements, segmental sales climbed 11% in the second quarter of 2014.
Third-party net sales in the Specialty segment jumped 22% to $287.8 million. Specialty segment sales were boosted by the strong performance of its flagship product – EpiPen Auto-Injector – for severe allergic reactions. Sales of the product improved due to market expansion and favorable pricing.
Adjusted gross margin during the second quarter of 2014 expanded to 50% from 49% in the year-ago quarter on the back of strong sales of EpiPen Auto-Injector.
2014 Outlook Adjusted
Mylan tweaked its outlook for 2014 both with respect to earnings and revenues. The company now expects adjusted earnings per share in the range of $3.25 to $3.45 (old guidance: $3.25 to $3.60 ). The company expects revenues in the range of $7.8 billion to $8 billion (old guidance: $7.8 billion to $8.2 billion). The projection includes the launches of the generic versions of Copaxone and Celebrex in the final quarter of the year. The Zacks Consensus Estimate for 2014 is pegged at earnings of $3.37 per share on revenues of approximately $7.79 billion.
The company expects adjusted earnings per share in the band of 90 cents to 95 cents in the third quarter of 2014. The guidance is below the Zacks Consensus Estimate of $1.04. Mylan expects the fourth quarter of 2014 to be its strongest this year due to the above generic launches.
Our Take
While impressed by the rebound in the Specialty segment after a disappointing first quarter, we are disappointed by soft generics sales in the U.S. which were down 5.8% sequentially. Mylan’s deal with Abbott Laboratories (ABT) to buy the latter’s branded specialty and generics business in the developed ex-U.S. markets is a prudent move. The all stock deal is expected to close in the first quarter of 2015. Mylan said that its 2018 earnings guidance (of at least $6.00 per share) could be reached earlier in the event of the deal achieving its desired results.
Nevertheless, the slashing of the top end of the 2014 guidance both for revenues and earnings is disappointing. The lower–than-expected third quarter earnings guidance is also concerning. Consequently, the earnings report failed to find favor with investors and the stock was down in early trading.
Mylan carries a Zacks Rank #3 (Hold). Better-ranked stocks in the health care space include Mallinckrodt (MNK) and Celgene Corp. (CELG). While Mallinckrodt carries a Zacks Rank #1 (Strong Buy), Celgene is a Zacks Ranked #2 stock.
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