GlaxoSmithKline (GSK - Analyst Report) reported fourth quarter earnings of 57 cents per ADS, missing the Zacks Consensus Estimate of 96 cents and falling behind the year-ago earnings of 90 cents per ADS. Revenues remained flat year over year at constant exchange rates (CER) at $11.0 billion. Revenues came in slightly above the Zacks Consensus Estimate of $10.9 billion.
Earnings in 2012 were $2.91 per ADS compared with $3.62 in the year-ago period. Full year earnings were much below the Zacks Consensus Estimate of $3.56. Revenues for the year dropped 1% year over year (at CER) to $42.0 billion. The Zacks Consensus Estimate for 2012 stood at $42.6 billion.
All growth rates mentioned below are on a year-on-year basis and at CER.
The Quarter in Detail
The company operates through two segments: Pharmaceuticals and Vaccines and Consumer Healthcare. Both Pharmaceuticals and Vaccines and Consumer Healthcare sales remained flat in the quarter. Pharmaceuticals revenues fell 1% primarily due to price cuts in the EU, generic competition and unfavorable stoking patterns in the US. Vaccines revenues increased 10% driven by strong performance in the US and Emerging Markets and Asia Pacific (EMAP).
Except for Emerging Markets and Asia Pacific/EMAP (16%), Pharmaceuticals and Vaccines sales decreased in all other regions including Japan (4%), US (2%) and Europe (5%).
In the Consumer Healthcare division, growth in Oral care (10%), Nutrition (9%) and Skin Health (5%) was offset by a decline in the Total Wellness (12%) segment. Sales decreased in the US (4%) and Europe (8%) and increased in the Rest of the World (9%).
The company bought back shares worth £2,493 million during 2012. Total share repurchases were on the higher side of the guidance of £2 billion and £2.5 billion provided during third quarter results. Share repurchases in 2013 are expected in the range of £1 – £2 billion.
The company declared an interim dividend of about 69 cents per ADS. The company expects to increase dividend payout in 2013.
The company remains on track to deliver £2.8 billion (of which £2.5 billion has already been realized) in annual savings under its restructuring program by 2014. Glaxo plans to supplement this with a new major change program, which will focus on restructuring the company’s business in Europe, improving efficiency in supply process, manufacturing and Research and Development (R&D). The program is expected to yield annual cost savings of at least £1 billion by 2016.
Glaxo expects to report revenue growth of approximately 1% (at CER) with core earnings growth of 3%-4% for 2013 from the year-ago period. The pipeline is expected to advance significantly with six candidates (Relvar/Breo, Anoro, albiglutide, dabrafenib, dolutegravir and trametinib) under regulatory review. Glaxo expects to launch 15 new products in the next three years.
We are pleased with Glaxo’s efforts to control cost and restructuring operations. We are also encouraged by the progress in Glaxo’s pipeline. However, we remain concerned about the challenges faced by the company in the form of EU pricing pressure and generic competition.
Glaxo carries a Zacks Rank #4 (Sell) in the short run. Pharma companies that currently look better-positioned include Valeant Pharma (VRX - Snapshot Report), Novo Nordisk (NVO - Analyst Report) and Sanofi (SNY - Analyst Report). All the three companies carry a Zacks Rank #1 (Strong Buy).