Swiss pharmaceutical giant Novartis (NVS) reported earnings per share of $1.27 for the first quarter of 2012, missing the Zacks Consensus Estimate by $0.05. Earnings were 10% below the year-ago figure. Earnings in the reported quarter were hurt by lower revenues and margins.
First quarter revenues of $13.7 billion fell short of the Zacks Consensus Estimate of $14.1 billion mainly due to the poor performance of Sandoz (the generic arm of Novartis), the Vaccines and Diagnostics and Consumer Health segments. Foreign exchange negatively impacted the first quarter revenues by 1%. Revenues were down 2% from the year-ago period.
Quarter in Detail
Novartis operates in five segments. The financial details of these segments are discussed below.
Pharmaceutical division sales were up 2% to $7.8 billion in the quarter. Volume expansion and new product launches including Lucentis, Tasigna, Afinitor and Gilenya contributed to the revenues. The newly launched products accounted for 33% of the total sales recorded by the Pharmaceutical unit during the first quarter of 2012. However, revenues were partly offset by the generic competition faced by Diovan and Femara.
We note that the Pharmaceutical division received some encouraging news recently when the regulatory authorities in both the US and the EU confirmed the positive benefit-risk profile of Gilenya. Gilenya is the first oral treatment to be approved for multiple sclerosis (MS). We note that Gilenya could face competition from Biogen Idec’s (BIIB) oral MS candidate BG-12 on approval. The candidate is currently under regulatory review.
The Alcon Division recorded revenues of $2.5 billion in the quarter, up 5% driven by strong sales of surgical products.
Sales from the Sandoz division declined 10% to $2.1 billion due to price erosion. Overall volume growth was flat as double-digit growth in Western Europe, Brazil and Asia were offset by a decline in US and Germany.
Sales at the Vaccines and Diagnostics division fell 19% from the year-ago quarter to $299 million. We note that sales in the first quarter of 2011 were boosted by bulk pediatric shipments.
Consumer Health sales were down 20% from the prior-year quarter to $932 million due to a dip in sales of both over-the-counter (OTC) and animal health products. Sales were largely affected by supply shortages due to suspension of operations at Novartis’ Lincoln facility in Nebraska. The company expects to resume production from May 2012 and subsequently start shipments in mid–2012.
2012 Guidance
Novartis reaffirmed its 2012 sales guidance at constant currency and expects it to be in line with 2011 levels. Foreign exchange is expected to negatively impact sales by 2% – 3%.
Our Recommendation
Currently, we have a Neutral recommendation on Novartis. The company carries a Zacks #4 Rank (“Sell” rating) in the short run.
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