Mylan Inc.’s (MYL) fourth quarter 2013 earnings (excluding special items) of 78 cents per share surpassed the Zacks Consensus Estimate by 3 cents. Earnings in the final quarter of 2013 surged 20% from the year-ago quarter. A lower share count benefited results. On a reported basis (including special items), fourth quarter 2013 earnings climbed 15% to 45 cents per share.
Revenues climbed 5% to $1.81 billion, beating the Zacks Consensus Estimate of $1.78 billion. Despite the negative impact of currency fluctuation and the lackluster performance of newly launched products, Mylan recorded growth on the back of strong sales in the Specialty segment. Mylan reports revenues from two segments: Generics and Specialty.
Full year 2013 revenues increased 2% to $6.91 billion, topping the Zacks Consensus Estimate of $6.89 billion. Earnings (excluding special items) increased 12% to $2.89 per share, above the Zacks Consensus Estimate of $2.87 per share.
Fourth Quarter in Details
Generic third-party net sales, derived from sales in North America, Europe, the Middle East & Africa (EMEA) and rest of the world, climbed 4.5% to $1.62 billion. Sales were hurt by adverse foreign currency movements.
Segmental third-party net sales grew 6.7% to $853.9 million in North America on the back of higher volumes. However, new products performed disappointingly, contributing just $77 million, down 57%.
Third-party net sales from the EMEA market improved 6.6% to $392.5 million. Strong performance in Italy boosted EMEA revenues. Third party net sales from rest of the world declined 3.5% to $371.4 million. Foreign currency movements adversely impacted revenues from the region due to weaknesses in the Indian, Australian and Japanese currencies versus the dollar. Excluding the impact of foreign currency movements, segmental sales climbed 11% in the final quarter of 2013.
Third-party net sales in the Specialty segment increased 13% to $176.1 million. Specialty segment sales were driven by the strong performance of its flagship product – EpiPen auto-injector – for severe allergic reactions. Favorable pricing and volume aided sales of the product in the quarter. Mylan and Pfizer (PFE) have an agreement for EpiPen, under which Pfizer manufactures and Mylan markets the product.
Adjusted gross margin during the fourth quarter of 2013 improved to 51% from 49% in the year-ago quarter. Margins were positively impacted primarily by strong sales of EpiPen auto-injector, driven by favorable pricing and volume. Adjusted operating expenses climbed 9.3% to $476.7 million during the reported quarter.
2014 Outlook
Apart from releasing its earnings results, Mylan provided guidance for 2014. The company expects adjusted earnings in the range of $3.25–$3.60 per share, up 19% year over year. The Zacks Consensus Estimate (pre-earnings) of $3.39 per share is within the company’s guidance range.
The company expects revenues in the range of $7.8–$8.2 billion, up 16%. The guidance is above the pre-earnings Zacks Consensus Estimate of $7.72 billion. The stock gained marginally in pre-market trading primarily due to the company’s higher-than-expected revenue guidance.
Mylan, which acquired Agila Specialties private limited (the injectable drugs division of India’s Strides Arcolab limited) in 2013 to strengthen its presence in the high potential generic injectables market, expects to make another meaningful transaction in 2014.
Our Take
At first glance, Mylan’s fourth quarter results look impressive with the company surpassing earnings and revenue estimates. However, the modest performance of the Generic segment, Mylan’s primary contributor to the top line, is concerning. Earnings benefited from a lower share count.
Mylan should be able to deliver on its long-term strategy (2018 adjusted earnings expectation of at least $6.00 per share) based on expansion in emerging markets, launch of new products, focus on biosimilars and pipeline development. However, nearer term, we remain concerned about the performance of existing products.
Mylan carries a Zacks Rank #3 (Hold). Better ranked stocks in the medical sector include Alexion Pharmaceuticals, Inc. (ALXN) and Gilead Sciences, Inc. (GILD). Both stocks carry a Zacks Rank #1 (Strong Buy).
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