Mylan’s (MYL) third-quarter 2014 earnings (excluding special items) of $1.16 per share beat the Zacks Consensus Estimate by 2 cents. Earnings in the third quarter of 2014 increased 41.5% from the year-ago quarter. Earnings benefited from higher revenues and better gross margins. We expect investors to react positively to the news.
On a reported basis (including special items) third-quarter 2014 earnings tripled (increased 215%) to $1.26 per share. Revenues climbed 17.9% to $2.08 billion, marginally above the Zacks Consensus Estimate of $2.06 billion. Mylan recorded year-over-year growth on the back of double-digit revenue growth in the Specialty segment, North America and rest of the world.
Third Quarter in Details
Generics third-party net sales, derived from sales in North America, Europe and rest of the world, climbed 15% to $1.61 billion. Segmental third-party net sales grew 19% to $841.8 million in North America. New product launches and capitalizing on unanticipated market opportunities aided revenues.
Third-party net sales from the European market increased slightly by 1% to $351.5 million aided by higher volumes in Italy and France and new product launches which were partially offset by lower pricing throughout Europe. Third party net sales from rest of the world rose 19% to $414.1 million. Segmental performance improved on the back of increased sales of its antiretroviral products in India. Performance in Australia was also strong during the quarter.
Third-party net sales in the Specialty segment jumped 29% to $462 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 increased volume and favorable pricing. Mylan expects the product to generate more than $1 billion in 2014.
Adjusted gross margin during the third quarter of 2014 expanded to 54% from 51% in the year-ago quarter on the back of strong sales of EpiPen Auto-Injector and new products.
2014 Outlook
Mylan increased its guidance for 2014 earnings based on strong performance in the third quarter. The company now expects adjusted earnings per share in the range of $3.54 to $3.60 (old guidance: $3.44 to $3.54). Mylan tweaked its revenue guidance. The company expects revenues in the range of $7.7 billion to $7.8 billion (old guidance: $7.8 billion to $8.0 billion). The projection does not include the potential launches of the generic versions of Copaxone and Lidoderm. The Zacks Consensus Estimate for 2014 is pegged at earnings of $3.48 per share on revenues of approximately $7.73 billion.
The company expects adjusted earnings per share in the band of $1.03 to $1.09 in the third quarter of 2014, much above the year-ago earnings of 78 cents. The anticipated increase is attributed to new product launches in North America and continued growth in the Specialty segment. The guidance is above the Zacks Consensus Estimate of 99 cents.
Our Take
Mylan’s third-quarter results were better than expected with the company beating on both earnings and revenues driven by strong sales in North America and the Specialty segment. We are looking forward to the potential launch of generic versions of Copaxone and Lidoderm, which should boost revenues further.
We remain positive on Mylan’s deal with Abbott Laboratories (ABT) to buy the latter’s branded specialty and generics business in the developed ex-U.S. markets, which is expected to close in the first quarter of 2015. On Oct 21, 2014, Mylan amended the agreement, which is expected to result in additional accretion. The deal is expected to be immediately and significantly accretive to the company.
Mylan said that it expects to achieve the 2018 earnings guidance of at least $6 per share even earlier.
Mylan carries a Zacks Rank #1 (Strong Buy). Other well-ranked stocks in the health care sector include Mallinckrodt (MNK) and Actavis (ACT). While Mallinckrodt carries a Zacks Rank #2 (Buy), Actavis carries the same rank as Mylan.
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