Pfizer Inc. (PFE) posted stronger-than-expected third quarter results. While third quarter earnings came in at 62 cents per share, well above the Zacks Consensus Estimate of 56 cents and 15% above the year-ago earnings, revenues increased 7% to $17.2 billion, beating the Zacks Consensus Estimate of $16.5 billion. Earnings were boosted by higher revenues and lower share count.
Including one-time items, earnings increased 64% to 48 cents.
The Quarter in Detail
Foreign exchange favorably impacted third quarter revenues by $951 million or 6%, with operational factors boosting revenues by $247 million or 1%. Generic competition affected revenues by $950 million.
International revenues increased 15% to $10.3 billion, reflecting 4% operational growth and an 11% favorable foreign exchange impact. Meanwhile, US revenues declined 3% to $6.9 billion.
Biopharmaceutical products delivered third quarter revenues of $14.7 billion, up 6%. All units in the Biopharmaceutical segment posted an increase in sales excluding Oncology (down 1% to $332 million).
The Primary Care unit recorded a 5% increase in revenues. Favorable currency movements, Lipitor’s growth in the US and strong performances by products like Celebrex, Lyrica, Pristiq and Spiriva boosted revenues. King legacy products boosted revenues by $119 million, or 2%.
The increase in revenues was partially offset by the loss of exclusivity of Lipitor in Canada and Spain in May and July 2010, respectively, and the loss of exclusivity of Aricept in the US in Nov 2010. Primary Care revenues were impacted by $415 million or 7% due to genericization.
The Specialty Care segment reported strong growth in the Prevenar franchise and Enbrel in most international markets. Revenues, which came in at $3.8 billion, up 2%, were positively impacted by foreign exchange as well. However, total sales were negatively impacted by the loss of exclusivity of Vfend and Xalatan in the US in February and March 2011, respectively.
Prevnar 13 sales in the US were also impacted as a fewer number of patients received the catch-up dose. Generic competition impacted Specialty Care segment revenues by about $214 million or 6% in the third quarter of 2011.
Meanwhile, contributions from King products ($144 million) and favorable foreign exchange movement helped increase Established Products revenues (up 3% to $2.2 billion) despite the loss of exclusivity and increased competition for Effexor, Protonix and Zosyn. The loss of US exclusivity of Protonix and Zosyn impacted revenues by $242 million, or 11%.
Sales of oncology product Sutent increased 16% to $298 million. Sales of Pfizer’s mega-blockbuster anti-cholesterol medicine Lipitor increased 3% globally to $2.6 billion in the third quarter. While US sales of the drug increased 13% to $1.5 billion, international sales fell 8% to $1.1 billion. The product, which is facing increased competition from cheaper generic rivals, is slated to lose exclusivity in the US later this month.
Wyeth legacy products like the Premarin family and Enbrel posted sales of $267 million and $957 million, respectively.
Both the Animal Health (up 21% to $1 billion) and Consumer Healthcare (up 15% to $774 million) segments recorded a growth in revenues. King’s Animal Health products contributed $90 million to revenues. Improving economic conditions and positive currency fluctuations drove Animal Health results.
Growth in the Consumer Healthcare unit was driven by the launch of new dietary supplements and favorable currency movement. Nutrition revenues grew 31% to $577 million.
Earlier, Pfizer had announced that it is evaluating strategic alternatives for its Animal Health and Nutrition businesses. The company is also evaluating Rx-to-OTC switches for its Consumer Healthcare business. Earlier this year, Pfizer sold off its Capsugel unit to Kohlberg Kravis Roberts & Co L.P. (KKR).
Selling, informational and administrative (SI&A) expenses remained flat at $4.6 billion during the quarter. R&D expenses fell 6% to $2 billion. Pfizer remains committed to its cost-containment efforts and should realize cost savings due to the Wyeth integration, workforce reductions, actions taken with the R&D portfolio, as well as savings from a smaller physical footprint.
2011 Guidance Revised
While Pfizer maintained its guidance for 2012, the company revised certain components of its 2011 outlook. Pfizer raised its earnings guidance for 2011 by a few cents and now expects to earn $2.24 – $2.29 per share on revenues of $66.2 – $67.2 billion. The company was previously expecting to earn $2.16 – $2.26 on revenues of $65.2 – $67.2 billion. The Zacks Consensus Estimate for 2011 currently stands at $2.25 per share.
While SI&A expenses are expected in the range of $19.4 – $19.9 billion (old guidance: $19.2 – $20.2 billion), R&D expenses are expected in the range of $8.1- $8.4 billion (old guidance: $8.0- $8.5 billion).
Pfizer continues to expect earnings of $2.25 – $2.35 per share on revenues of $62.2 and $64.7 billion in 2012. The Zacks Consensus Estimate for 2012 currently stands at $2.28 per share.
Pfizer expects to spend $6.5 – $7.0 billion on R&D in 2012. Pfizer intends to focus on those disease areas which represent higher potential. SI&A spend is expected in the range of $17.5 – $18.5 billion.
Lower R&D spend and share buybacks should help drive earnings. Pfizer repurchased shares worth $2.1 billion during the third quarter of 2011. So far in 2011, the company has spent $6.5 billion on share repurchases. Pfizer expects to spend $7 billion – $9 billion (old range: $5 billion – $7 billion) on share repurchases in 2011.
Neutral on Pfizer
We currently have a Neutral recommendation on Pfizer, which carries a Zacks #3 Rank (short-term Hold rating). We expect investor focus to remain on the upcoming loss of US exclusivity on key product, Lipitor. Lipitor, which posted revenues of $7.6 billion in the first nine months of 2011, will lose US exclusivity on November 30.
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