Drug major Pfizer Inc. (PFE) reported Tuesday a 26% rise in profit for the third quarter, driven by sharply lower one-time charges as well as cost-reduction initiatives. On an adjusted basis, quarterly earnings per share fell 18%, yet topped market projections. Revenues dropped 3% on poor segmental performance as well as unfavorable foreign currency impact. Further, Pfizer lifted its fiscal 2009 earnings and revenue forecast, above Wall Street view, to reflect its recently concluded $68 billion takeover of rival Wyeth (WYE).
Q3 Results
Third-quarter net income was $2.88 billion or $0.43 per share, higher than prior year's net income of $2.28 billion or $0.34 per share.
The company noted that third-quarter 2009 profit was favorably impacted by the non-recurrence of the charge of $640 million resulting from agreements to resolve certain litigation involving the company's non-steroidal anti-inflammatory, or NSAID, pain medicines last year, as well as lower costs associated with cost-reduction initiatives and savings generated from those initiatives.
However, these were partially offset by lower revenues, unfavorable impact of foreign exchange, higher interest expense and an increase in the effective tax rate.
The latest quarter results included purchase accounting adjustments of $397 million or $0.06 per share, acquisition- related costs of $87 million or $0.01 per share, and certain significant items of $101 million or $0.01 per share, mainly comprising net interest expense on Wyeth acquisition.
Meanwhile, prior-year results included purchase accounting adjustments of $460 million or $0.07 per share, acquisition- related costs of $24 million, and certain significant charges of $1.44 billion or $0.22 per share, comprising restructuring charges, implementation costs, and costs on certain legal matters.
Excluding items, adjusted net income fell 17% to $3.46 billion from $4.18 billion in the year ago quarter, and earnings per share fell 18% to $0.51 from prior year's $0.62. On average, 15 analysts polled by Thomson Reuters expected the company to earn $0.48 per share for the quarter. Analysts' estimates typically exclude special items.
Quarterly revenues dropped 3% to $11.62 billion from $11.97 billion in the comparable quarter last year. Analysts expected the company to report revenue of $11.41 billion for the quarter.
Pfizer noted that the revenues were unfavorably impacted by about $610 million or 5%, due to foreign exchange, while it were favorably impacted by $217 million, or 2%, due to a one-time adjustment in the year-ago period for prior years' liabilities for product returns.
For third-quarter 2009, U.S. revenues dropped 2% year-over-year to $4.8 billion, and international revenues fell 4% to $6.8 billion that reflected 5% operational growth and a 9% unfavorable impact of foreign exchange. U.S. revenues represented 41% of the total revenues, while international revenues represented 59% of the total revenues.
Segmental Analysis
Segment-wise, total Pharmaceutical revenues dropped 3% to $10.68 billion from prior year's $10.98 billion. Effective January 1, 2009, Pfizer expanded its operating model within the Pharmaceutical business to include five customer-focused units, in addition to its Animal Health business.
Primary Care revenues for quarter were $5.51 billion, down 4% from last year. Operationally, segmental revenues were flat, as the strong international performance of Lyrica and Lipitor was offset mainly by lower Lipitor revenues in the U.S. Operational performance was offset by 4% drop in foreign exchange.
Revenues from Specialty Care grew 3% to $1.57 billion, mainly on 6% operational growth driven by the solid performance of Rebif and Revatio, despite a 3% unfavorable foreign currency impact. Oncology revenues fell 5% to $371 million, while operational growth was 2%, primarily due to the strong performance of Sutent partially offset by the unfavorable impact of the loss of exclusivity of Camptosar in Europe in July 2009.
In the Established Products segment, revenues fell 12% to $1.62 billion, comprising a 9% operational decline and 3% unfavorable impact of foreign exchange. The unit, which manages a portfolio of products that have generally lost patent protection or marketing exclusivity and that have an expected decline in revenues at this stage in their lifecycle, declined 9% on a constant currency basis, the company noted.
Established Products revenues for third-quarter 2009 were $1.6 billion, a decline of 12% compared with $1.8 billion in the year-ago quarter, comprised of a 9% operational decline and the unfavorable impact of foreign exchange.
Revenues from Emerging Markets dropped 4% from last year to $1.60 billion. Operational growth of 9%, largely attributable to strong growth in high-priority countries, notably China and India, was more than offset by 13% unfavorable impact of foreign exchange.
In the quarter, revenues from Animal Health dropped 4% to $678 million, as 2% operational growth mainly on the solid performance in emerging markets and certain new products, was more than offset by 6% unfavorable impact of foreign exchange.
Other Metrics
In the quarter, cost of sales declined 16% to $1.79 billion, selling, informational and administrative expenses dropped 7%, and Research and development expenses were down 13%.
Pfizer also said that operational improvements resulting from cost-reduction initiatives decreased adjusted total costs by approximately 3% and foreign exchange decreased adjusted total costs by about 2%. The operational improvements were driven partially by workforce reduction as well as manufacturing and research and development site exits.
Commenting on the results, Jeff Kindler, Chairman and Chief Executive Officer, said, "We are pleased with our results this quarter and in our ability to once again deliver solid operational performance in an environment that continues to be challenging. Excluding foreign exchange, our five Pharmaceutical units and Animal Health business continued to perform well enabling us to continue to meet our commitments."
Q2 Highlights
In the preceding second quarter, Pfizer had reported net income of $2.26 billion or $0.34 per share, down from $2.78 billion or $0.41 per share in the prior-year quarter, negatively impacted by strengthening of the U.S. dollar and costs incurred in connection with the pending Wyeth acquisition. Revenues declined 9% to $10.98 billion.
Peer Performance
Among other drug makers, diversified healthcare giant Johnson & Johnson (JNJ) last week posted a mere 1.1% rise in profit for the third quarter to $3.35 billion, and per share earnings improved 2.6% to $1.20. Meanwhile, the New Brunswick, New Jersey-based company's sales fell 5.3% to $15.1 billion on weak sales of its prescription drugs Topamax and Risperdal, negatively impacted by generic competition.
Healthcare giant Merck & Co. Inc. (MRK) is scheduled to issue its third-quarter results on October 22, with analysts expecting earnings of $0.83 per share on revenues of $6.00 billion. This compares to the year-ago non-GAAP earnings of $0.80 per share and revenues of $5.94 billion.
Another peer, Novartis AG (NVS) is also set to release third-quarter results on October 22, as analysts are looking for earnings of $0.98 per share on revenues of $10.86 billion. While reporting second-quarter numbers, Novartis reaffirmed expectations for strong underlying momentum in 2009, with Group net sales growing at a mid-single-digit rate in local currencies.
9-Month Highlights
For the nine months of fiscal 2009, Pfizer's net income was $7.868 billion or $1.16 per share, compared to prior year's $7.838 billion or $1.16 per share. Adjusted net income dropped 13% to $10.38 billion or $1.54 per share from $11.98 billion or $1.77 per share a year ago. Revenues declined 7% to $33.47 billion from last year's $35.95 billion. Foreign exchange unfavorably impacted revenues by 6%. U.S. revenues dropped 6% and international revenues fell 8%.
Frank D'Amelio, Chief Financial Officer, stated, "During the first nine months of 2009, we have continued to deliver on our 2009 financial commitments and our longer-term cost-reduction target."
FY09 Forecast
Pfizer lifted its fiscal 2009 financial guidance to reflect the acquisition of Wyeth on October 15, 2009. The latest forecast incorporates Wyeth's operations from the acquisition closing date through Pfizer's international and domestic year-ends.
For the year 2009, the company now expects earnings in the range of $1.45 to 1.50 per share, compared to the prior guidance range of $1.30 to $1.45 per share. Adjusted earnings are projected to be in a range of $2.00 to $2.05 per share, higher than previous range of $1.90 to $2.00 per share. Full-year revenues are now anticipated to be in the range of $49.0 billion to $50.0 billion, compared to the previous guidance range of $45.0 billion to $46.0 billion.
Analysts currently anticipate the company to earn $1.98 per share for the year, with estimates between $1.94 and $2.06 per share, on revenue of $48.43 billion.
Looking ahead, D'Amelio stated that the company anticipates that its broad portfolio of products and increased investment in high-growth opportunities will better position it to generate consistent earnings growth and continue to deliver on its commitments.
Most recently, Credit Suisse raised Pfizer's 2009 earnings estimate to $2.01 from $1.99 per share, and 2010 estimate to $2.42 from $2.23 per share, due to accretion from the Wyeth acquisition.
Pfizer said it will provide full-year 2010 financial guidance in conjunction with its fourth-quarter 2009 earnings release in January 2010.
Stock Movement
Pfizer is currently trading at $18.30, up $0.32 or 1.78%, on a volume of 8.6 million shares. In the past 52 weeks, the stock has been trading between $11.62 and $18.48.
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