GlaxoSmithKline (GSK) reported first quarter earnings of 84 cents per American Depository Share (ADS), missing the Zacks Consensus Estimate of 92 cents. Earnings grew 7% year over year at constant exchange rates (CER). Revenues increased 2% year over year at CER to $10.5 billion. However, revenues came in below the Zacks Consensus Estimate of $10.8 billion.
The Quarter in Detail
Pharmaceuticals and Vaccines and Consumer Healthcare sales grew 2% and 1%, respectively. Price cuts in the EU affected total revenue by 4.5% during the quarter.
While Pharmaceuticals and Vaccines sales increased in the US (9%), Japan (4%) and Emerging Markets and Asia Pacific/EMAP (2%), sales declined in Europe (6%). Worldwide sales were affected by a number of factors, including European austerity measures and weaker performance in EMAP.
Growth in Oral care (11%), Nutritional (11%) and Wellness (4%) was partially offset by a decline in the Skin Health (6%) segment. Sales increased in the US (8%), Europe (4%) and the Rest of the World (10%).
Glaxo continues to make progress with its cost-cutting initiative, which should help offset the impact of increasing generic competition over the next few years and help earnings grow. The company remains on track to deliver ?2.8 billion in annual savings under its restructuring program by 2014.
Meanwhile, the company bought back shares worth ?226 million during the first quarter of 2012. The company declared a dividend of about 55 cents per ADS. Total share repurchases in 2012 are expected to be between ?2 billion and ?2.5 billion.
2012 Outlook
Glaxo continues to expect positive revenue growth (at CER), with core operating margin picking up from 2012. The pipeline is expected to advance significantly with four candidates (albiglutide, dolutegravir, Mosquirix, LABA/LAMA) scheduled to complete phase III development in 2012. Additionally, the company has five candidates (including Votrient, Relovair, Promacta, trametinib/MEK, dabrafenib /BRAF) for which it is already seeking or planning to seek regulatory approval.
Neutral on Glaxo
We currently have a Neutral recommendation on Glaxo. A major part of Glaxo’s revenues will be exposed to generic competition as multiple drugs are scheduled to lose exclusivity in the next few years.
We expect the company’s top line as well as gross margins to remain under pressure in the coming quarters. In addition to generic competition, the US health care reform and EU pricing pressure will continue to affect sales.
Glaxo recently made an offer to acquire Human Genome Sciences, Inc. (HGSI) for $13 per share in cash. However, Human Genome rejected the offer.
Glaxo would get exclusive rights to Benlysta as well as other candidates such as darapladib and albiglutide if it is succeeds in acquiring Human Genome.
To read this article on Zacks.com click here.
Zacks Investment Research
