Actavis plc’s (ACT) shares gained 4.7% with the company posting strong fourth quarter results. Fourth quarter 2013 earnings came in at $3.17 per share, well above the Zacks Consensus Estimate of $3.06 per share and 99.4% above the year-ago earnings.
Revenues for the reported quarter came in at $2.779 billion, up 58.8% from the year-ago period, and slightly above the Zacks Consensus Estimate of $2.707 billion.
Full year earnings grew 58.3% to $9.50 per share, beating the Zacks Consensus Estimate of $9.40 per share. Revenues increased 46.7% to $8.678 billion, above the Zacks Consensus Estimate of $8.474 billion.
Results were boosted by the inclusion of products from the Warner Chilcott acquisition.
Quarterly Details
Actavis operates through three segments: Actavis Pharma, Actavis Specialty Brands and Anda Distribution.
The Actavis Pharma segment posted sales of $1.70 billion, up 20.3%. Results benefited from the Actavis Group acquisition. Moreover, revenues were driven by new product launches including the generic versions of Suboxone sublingual tablets, Cymbalta and Lidoderm. Generic Concerta sales, however, were impacted by the entry of competition.
International revenues were strong at $700.9 million, up 34%, reflecting the inclusion of legacy Actavis products.
Actavis Specialty Brands revenues came in at $695.5 million, up 426% from the year-ago period. The segment benefited from the Warner Chilcott acquisition. Increased contributions from products like Rapaflo and Generess Fe also aided the performance of the segment.
Net revenues from the Anda Distribution segment increased 88% during the quarter to $383.0 million reflecting higher volume and new product launches.
Standalone Outlook Maintained
Actavis, which recently announced its intention to acquire Forest Laboratories (FRX), said that it will provide a revised outlook for 2014 once the acquisition goes through. Meanwhile, the company maintained its standalone guidance which was provided at the Jan 31 analyst day event. At that time, Actavis had said that it expects earnings of $12.60 and $13.10 per share on revenues of more than $10 billion.
The Zacks Consensus Estimate of $12.91 is within the company’s guidance range.
Actavis expects the Forest Labs acquisition to drive double-digit accretion to earnings in 2015 and 2016. More than $4 billion of free cash flow will be generated in 2015 which will allow the company to de-lever its balance sheet rapidly.
Operating and tax synergies of about $1 billion will be realized following three years of close. This does not include any manufacturing or revenue synergies. Actavis intends to invest more than $1 billion every year on developing branded, generic and biosimilar products. The acquisition is scheduled to close in mid-14.
Our Take
Actavis’ fourth quarter results were strong with the company beating on both the top- and bottom-line. However, results were overshadowed by yesterday’s announcement regarding the company’s intention to acquire Forest Labs.
The decision to acquire Forest Labs is in line with the company’s strategy of building its branded product portfolio. With a fewer number of blockbuster products slated to lose patent protection in the coming years, quite a few generic companies have been focusing on strengthening their branded products offerings.
The Forest Labs acquisition will push up Actavis’ branded products revenues to 50% of total combined revenues from the current level of 30% of the standalone company’s revenues. The acquisition will lead to the creation of a specialty company with sales of more than $15 billion per year, a diversified portfolio and a presence in different geographical areas.
The Forest Labs acquisition will also bring about significant synergies and boost earnings and revenues.
While Actavis is a Zacks Rank #2 (Buy) stock, Forest Labs is a Zacks Rank #1 (Strong Buy) stock. Other well-ranked stocks in the health care sector include Dr. Reddy's Laboratories Ltd. (RDY), a Zacks Rank #1 stock and Mallinckrodt plc (MNK), Zacks Rank #2 stock.
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