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Teva Pharmaceutical Industries (TEVA - Analyst Report) reported fourth quarter earnings of $1.32 per American Depositary Share (ADS), a penny short of the Zacks Consensus Estimate and 17% below the year-ago earnings.

Fourth quarter revenues declined 7.5% to $5.25 billion, missing the Zacks Consensus Estimate of $5.27 billion.

Full year earnings came in at $5.35 per ADS, a penny below the Zacks Consensus Estimate but 7.6% above 2011 earnings. Full year revenues increased 10.9% to $20.32 billion, shy of the Zacks Consensus Estimate of $20.33 billion.

The Quarter in Detail

Teva reported revenue growth only in Europe (up 2%) in the reported quarter. Revenues declined in the US (down 14%) and RoW (down 3%). Currency fluctuations negatively impacted total revenues by $50 million.

Revenues in the US fell 14% to $2.6 billion in the reported quarter, mainly due to the genericization of Provigil in 2012 and higher generic revenues in the year-ago quarter.

The US generic business posted revenues of $1.0 billion, down 17%. Revenues in the year-ago quarter were much higher due to major launches in that quarter. During 2012, Teva launched 23 new generic products and expects to launch a similar number of products in 2013.

Specialty product revenues declined 7% to $2.1 billion in the fourth quarter of 2012. Revenues were negatively impacted by the genericization of Provigil which posted revenues of $25 million, down 93% from the year-ago quarter. Meanwhile, products like Treanda ($161 million, up 23%), Copaxone ($1.1 billion, up 14%) and Azilect ($86 million, up 4%) contributed to growth.

Copaxone revenues benefited from the take-back of distribution and marketing rights in Europe from Sanofi (SNY - Analyst Report).

Teva intends to file for approval of a 40 mg thrice-weekly (3TW - three times a week) formulation of Copaxone in Mar 2013, followed by potential launch a year thereafter.

Meanwhile, respiratory segment revenues declined 7% to $256 million. The women’s health business recorded revenues of $132 million, up 42%.

Revenues in Europe increased 2% to $1.5 billion. Strong Copaxone revenues and higher revenues from the OTC business drove performance.

European generic revenues of $930 million declined 5% from the year-ago period. Teva is working on improving its diversity, reach and flexibility in Europe.

RoW (Rest of the World including Canada, Israel, certain markets in Eastern Europe, Latin America and Asia) revenues slipped 3% during the quarter to $1.1 billion. Although performance was strong in Latin America, weaker performance in Canada (due to government-imposed price reforms) and the sale of certain businesses of Mepha AG affected revenues.

API revenues increased 3% to $202 million. OTC revenues increased 24% to $269 million. Teva has a partnership agreement with Procter & Gamble (PG - Analyst Report) targeting the consumer health care market.

Research & Development expense increased to $374 million from $371 million in the year-ago period. Meanwhile, Selling and Marketing (S&M) expenditures increased to $1,043 million from $1,025 million.

The company bought back 12.7 million shares during the quarter for about $0.5 billion. Teva has a $3 billion share buyback program which was announced in December 2011. Teva also announced a 15% hike in quarterly dividend. We are positive on the company returning value to shareholders.

2013 Outlook Maintained

The company maintained its outlook for 2013. Teva expects to earn $4.85 - $5.15 per ADS on total net revenues of $19.5 - $20.5 billion. The Zacks Consensus Estimate for earnings and revenues currently stand at $5.10 per ADS and $20.2 billion, respectively. The company said that it intends to sell its Irvine manufacturing facility. We believe a deal will be announced shortly.

Our Take

Teva is going through a transition period. Headwinds include EU pricing pressure, potential new competition for branded products (especially Copaxone) and fewer generic product launches compared to 2012. With the company not including the impact of its cost-savings plan in its guidance, we believe Teva has left some room for delivering above expectations. Share buybacks also leave some room for upside.

Teva carries a Zacks Rank #3 (Hold). Mylan (MYL - Analyst Report) currently looks more attractive with a Zacks Rank #2 (Buy).

Meanwhile, Procter & Gamble is also a Zacks Rank #2 stock. , Sanofi is a Zacks Rank #1 (Strong Buy) stock.

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