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Novartis Tightens FY20 Guidance As Q2 Profit, Sales Decline

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Swiss drug major Novartis AG (NVS) tightened its fiscal 2020 sales guidance on Tuesday, as second-quarter profit and sales declined, largely due to higher impairments. Meanwhile, Q2 core earnings rose and surpassed Wall Street analysts' estimate.

Further, the company noted that it remains "well positioned to meet its ongoing financial obligations and has sufficient liquidity to support our normal business activities."

The company's second-quarter net income was $1.87 billion, a decline of 4%, compared to $2.11 billion, last year. Earnings per share decreased 10% to $0.82 from $0.91 a year ago.

Core net income was $3.11 billion or $1.36 per share, compared to $3.10 billion or $1.34 per share, in the same period of last year.

On average, six analysts polled by Thomson Reuters expected earnings of $1.35 per share for the quarter. Analysts' estimate typically exclude certain special items.

Operating income declined 12% to $2.35 billion, while core operating income edged up 1% on a reported basis and up 6% at constant currency rates to $3.67 billion. Core operating income growth reflected lower spending and improved gross margin, driven by productivity and product mix, partly offset by lower sales

Net sales amounted to $11.35 billion, down 4% from the previous year's $11.76 billion. On a constant currency rate, sales dropped 1%. The results reflected largely reversing forward purchasing from the first quarter.

Seven Wall Street analysts had a consensus revenue estimate of $12 billion for the quarter.

The company said its key products continued growth, despite COVID-19. Volume contributed 5 percentage points to sales growth driven by Entresto, Zolgensma and Cosentyx, partly offset by the impacts of COVID-19.

Volume growth was offset by price erosion of 3 percentage points and negative impact from generic competition of 3 percentage points.

Looking ahead for fiscal 2020, the company tightened its continuing operations guidance within prior guidance ranges. The company expects net sales to grow mid single digit and core operating income to grow low double digit. The company now sees higher end for core operating income and lower end for sales.

Vas Narasimhan, CEO of Novartis, said: "...Our growth drivers and launches continue their strong momentum, with Cosentyx and Entresto increasing market share in the US. We are on track to deliver on our commitment to drive consistent margin expansion and are excited by the progress of our deep mid to late stage pipeline to drive long-term growth".

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