American Oriental Bioengineering’s (AOB) fourth quarter 2010 earnings per share came in at $0.04 per share, lower than the Zacks Consensus Estimate by $0.04 and the year-ago earnings by $0.10. Earnings in the final quarter of 2010 were hurt by lower revenues.
Revenues in the reported quarter declined 16.6% to $83.4 million. Revenues were below Zacks Consensus Estimate of $110 million. The fall in revenue was attributable to reduced sales of pharmaceutical products
American Oriental earns revenue from two operating segments–Manufacturing and Distribution. While the Manufacturing business accounted for approximately 95% of the company’s total revenue, the Distribution business – Nuo Hua generated $3.9 million in sales, accounting for the balance.
American Oriental records Manufacturing revenues from two sources – Pharmaceutical and Nutraceutical products. Sales from the two product lines declined approximately 19.7% to $68.3 million and 2.8% to $11.1 million, respectively, compared with the fourth quarter of 2009. The change in product mix impacted revenues.
Gross margin declined to 50.9% from 52.6% in the year ago quarter. Higher raw material prices, increased labor costs and price control measures by the government on certain drugs brought down the margin.
Operating expenses in the reported quarter declined marginally to $36.5 million in the final quarter of 2010. Research and development (R&D) expenses fell 15% to $4.6 million. General & administrative expenses fell14% to approximately $18.1 million in the reported quarter. American Oriental’s cost cutting initiatives resulted in the decline. Advertising expenses climbed 26% to $12 million driven by increased promotional activities.
Annual Results
For full-year 2010, American Oriental earned $0.22 per share, which was $0.31 lower than the year-ago earnings and $0.04 lower than the Zacks Consensus Estimate. Annual earnings were hurt by the increased operating costs which more than offset the rise in revenues.
2010 revenues climbed 3.3% to $305.9 million. Higher prescription drug sales (up 11.6%) and increased customer demand were mainly responsible for the increase. Revenues from OTC pharmaceutical products fell 5.8% in 2010. Revenues, however, fell well short of the Zacks Consensus Estimate of $332 million.
Our Recommendation
We have a Neutral stance on American Oriental which is supported by the Zacks #3 Rank (Hold rating) carried by the stock in the short run.
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