Novartis’ (NVS) third quarter 2010 earnings per ADR (excluding special items) of $1.36 handsomely beat the Zacks Consensus Estimate by $0.16 and the year-ago earnings by $0.19. Strong performances from new products drove earnings in the quarter.
Revenues climbed 13% (16% in constant currencies) to $12.6 billion but fell short of the Zacks Consensus Revenue Estimate of $12.9 billion. Strong performances came from all divisions of the Switzerland-based pharma giant in the reported quarter.
Higher sales were driven by an 11% growth in volumes, helped by the introduction of new products, which accounted for one-fifth of the total revenues in the reported quarter. Pricing pressures negatively impacted sales by 1%.
Growth at Novartis was aided to the tune of 6% by acquisitions. Sales of $617 million by Alcon (ACL) were included in Novartis’ third quarter results. We remind investors that during the quarter Novartis completed its acquisition of an additional 52% of Alcon from Nestle, thereby owning 77% of the eye-care company.
In terms of segments, Pharmaceuticals — the flagship division — grew 6% to $7.6 billion with recently launched products accounting for 22% of the sales in the division. Novartis’ Sandoz division grew 23% to $2.2 billion. The increase was mainly attributable to new product launches, strong performances across major regions and biosimilars.
Novartis’ Consumer Health segment rose 9% year-over-year to $1.6 billion driven with all the businesses performing impressively. The Vaccines and Diagnostics segment grew 21% benefiting from a strong start to the flu season
2010 Outlook
The pharma major also provided an outlook for 2010. The company forecasts sales growth in the low- to mid-teens range at constant currencies, taking into account four months of sales by Alcon. Excluding the contribution from Alcon, Novartis reiterated its 2010 guidance of sales growth in the range of mid- to high-single-digits. The company expects impact of currencies to be neutral assuming the prevalence of current exchange rates for the rest of 2010.
Our Take & Recommendation
Currently, we have a Zacks #2 Rank on Novartis which translates into a short-term Buy recommendation. We are pleased with Novartis’ wide range of products and its efforts to diversify further as is evident by the recent acquisition of a majority stake in Alcon. The company is looking to acquire the remaining stake in the eye-care company.
We believe that the acquisition of Alcon will help Novartis diversify and make up for revenues lost to generic competition. Moreover, it will help the company strengthen its position in the eye care market, which presents significant growth potential thanks to the unmet needs of the aging population. Once the merger is completed, Novartis’ eye care segment will consist of Alcon, CIBA Vision and select eye care medicines.
In the long- run we are more cautious and have a Neutral stance on the stock.
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