Roche Holdings Ltd.‘s (RHHBY) fiscal 2011 earnings per share came in at $3.48, compared with $3.07 reported in the year-ago period. Earnings came in ahead of the Zacks Consensus Estimate of $3.31. Earnings were helped by reduced financial expenses and a lower tax rate.
Revenues declined 10% (in Swiss francs) from the year-ago period. However, in dollar terms, revenues increased 5.8% from the previous year figure to $48.2 billion, primarily due to favorable exchange rate movements. Revenues also managed to surpass the Zacks Consensus Estimate of $45.8 billion.
The Year in Detail
Roche reports revenues under two segments: Pharmaceuticals Division and Diagnostics Division. (All the growth rates mentioned below are in Swiss francs)
Sales for the Pharmaceuticals Division declined 12%, primarily due to a considerable reduction in sales of Tamiflu and Avastin (7%); decline in CellCept (14%), Boniva (22%) and NeoRecormon/Epogin franchise (23%) sales, due to loss of US patent protection. The segment’s sales were also impacted by US health care reforms, European austerity measures and price cuts in Japan.
These factors more than offset the robust growth of MabThera/Rituxan (8%), Herceptin (9%), Xeloda (8%), Tarceva (7%) and Lucentis (23%). Newly launched drugs like Actemra/RoActemra and Mircera also reported strong sales in 2011.
While a relatively mild influenza season and the completion of most government stockpiling orders resulted in a drop in Tamiflu sales, Avastin sales were affected by the regulatory and reimbursement uncertainty surrounding the metastatic breast cancer indication of the drug.
Revenues from the Diagnostics Division slid 7%, attributable primarily to a 15% decline in the Applied Science segment, a 10% decline in the Diabetes Care segment, an 8% plunge in the Molecular Diagnostics segment and a 4% slip in the Professional Diagnostics Segment.
Roche’s operating profit increased 6%, driven by savings from the Operational Excellence Program. Operating profit margin increased 70 basis points to 35.6% in 2011.
Outlook for 2012
The company expects total revenue and revenue from the Pharmaceuticals Division to grow in low to mid-single-digits in 2012. Sales from the Diagnostics segment are expected to surpass market growth. Performance of the Pharmaceuticals segment should be driven by new product launches and Roche’s diversified product portfolio.
Moreover, the company anticipates earnings to experience high single-digit growth in 2012.
Operational Excellence Program
In November 2010, Roche announced the Operational Excellence global restructuring plan, aimed at achieving significant efficiency and productivity gains. As a result of this program, the company generated savings of 1.8 billion Swiss francs during 2011.
During the course of the implementation of the Operational Excellence Program (2010 to 2012), Roche expects to incur restructuring costs of 2.8 billion Swiss francs, of which 1.3 billion Swiss francs were incurred in 2010 and 0.9 billion Swiss francs in 2011.
Further, this program is expected to generate annual savings worth 2.4 billion Swiss francs from 2012 onwards.
Our View
We note that Roche has been very active lately in entering into deals and making acquisitions, with the most recent being last month’s proposed acquisition of Illumina Inc. (ILMN) for $44.50 per share (aggregate value $5.7 billion). We believe that these transactions will help bolster the company’s portfolio, thereby driving long-term growth. Thus, we have a Zacks #3 Rank (Hold rating) on Roche in the short-term.
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