AstraZeneca plc’s (AZN) second-quarter earnings came in at $1.79 per American Depositary Share (ADS), surpassing both the Zacks Consensus Estimate of $1.59 and the year-ago figure of $1.64. Lower net finance expense and a lower tax rate boosted AstraZeneca’s second quarter earnings.
Total revenue increased 3% year over year to $8.2 billion, about in line with the Zacks Consensus Estimate. The primary reasons for the increase in revenues were strong performance of AstraZeneca’s key brands such as Crestor (sales up 23% at constant exchange rates [CER] to $1.43 billion), Seroquel (up 8% CER to $1.35 billion), Symbicort (up 20% CER to $664 million), and robust growth in emerging markets.
AstraZeneca recorded strong sales across all geographies during the quarter. Sales in the US, Western Europe, established markets and emerging markets increased (at CER) 4%, 1%, 4% and 16%, respectively.
Among the product categories, while Oncology and Infection & Other both recorded sales declines (at CER) of 11% and 14%, respectively, all other segments recorded an increase in revenues. AstraZeneca earned about 30% of its revenues during the quarter from Cardiovascular drug sales. This segment and Neuroscience recorded the highest growth of 8% and 6% (at CER), respectively. Revenues for the Gastrointestinal segment increased 1% (at CER), while revenues from Respiratory and Inflammation segment remained flat (at CER).
AstraZeneca’s gross margin increased to 83.0% during the second quarter from 82.7% in the year-ago period driven by lower payments made to Merck and Co. (MRK). However, operating margin declined to 44.6% from 45.3% in the year-ago period, mainly due to lower other income.
With respect to the restructuring program announced earlier, the company incurred costs of $470 million during the quarter.
AstraZeneca earlier had plans to repurchase $1 billion worth of shares during 2010, of which shares worth $516 million have been repurchased so far. However, now the company expects to buy back shares worth $2 billion during 2010.
Outlook Raised
Based on a strong first half, AstraZeneca revised upward its guidance for 2010. The company expects earnings per ADS in the range of $6.35 to $6.65, up from the previous guidance range of $6.05 – $6.35. The revenue guidance was also changed with the company now expecting revenues to decline in the low single-digit range. Earlier, AstraZeneca was expecting revenue to decline in mid single-digits.
Our Take
We currently have a Neutral recommendation on AstraZeneca, which is supported by a Zacks #3 Rank (Hold). We believe the cost-cutting program will aid earnings in the near term, but will not be enough to compensate for continued revenues deterioration beyond 2010, when several major drugs start going off-patent.
However, the June 29 favorable court ruling over Crestor’s US patent (which was upheld and is valid until 2016), is a major win for the company, as Crestor is one of the main drugs of AstraZeneca. Additionally, the US Food and Drug Administration (FDA) Committee recommending the approval of Brilinta for acute coronary syndrome will keep investors focused on the FDA’s final decision which is expected by October 19.
Brilinta is also under regulatory review in the EU and the company expects the European Committee’s opinion during the second half of 2010, with the European Commission’s decision in first-quarter 2011.
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