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Pfizer Inc. (PFE - Analyst Report) posted first quarter 2013 earnings of 54 cents per share, a penny below the Zacks Consensus Estimate and 5% below the year-ago earnings. Results were hit by the loss of exclusivity of certain products and the unfavorable impact of currency fluctuation (2 cents per share). Revenues, which fell 9% to $13.5 billion, missed the Zacks Consensus Estimate of $14.0 billion.

Including one-time items, first quarter earnings were 38 cents per share compared to the year-ago earnings of 24 cents.

The Quarter in Detail

While foreign exchange cut first quarter revenues by $118 million or 1%, operational factors impacted revenues negatively by $1.3 billion or 8%.

International revenues declined 9% to $8.1 billion. Meanwhile, US revenues declined 10% to $5.4 billion. US revenues were hit by the loss of exclusivity of Lipitor in Nov 2011 and Geodon in Mar 2012 as well as purchasing patterns of Prevnar/Prevenar 13.

Biopharmaceutical products delivered first quarter revenues of $11.5 billion, down 12%. While the Primary Care, Established Products and Specialty Care units recorded a decline in revenues, Emerging Markets, Zoetis (ZTS - Analyst Report), Oncology and Consumer Healthcare posted an increase in revenues.

The Primary Care unit recorded a 21% decline in revenues, which came in at $3.2 billion. Lyrica continued to perform well with sales coming in at $1.1 billion, up 12%.

Specialty Care segment sales declined 12% to $3.2 billion. The segment was impacted by the timing of US government purchases of Prevnar 13 and the shift in the reporting of Geodon and Revatio revenues in the US and Xalabrands revenues in developed Europe and Australia.

Established Products revenues declined 16% to $2.4 billion due to the presence of several generic versions of Lipitor and competitive and pricing pressure.

Lipitor was hit hard by the loss of exclusivity in the US. Pfizer saw Lipitor revenues fall 55% to $171 million in the US. Generic competition increased with the entry of additional players in the market.

The first quarter saw revenues from Emerging Markets grow 5% to $2.4 billion. Zoetis recorded a 5% increase in revenues which came in at $1.1 billion.

Consumer Healthcare revenues increased 12% to $811 million benefiting from the Alacer Corp. acquisition and a strong cold and flu season in the US. Oncology sales increased 29% to $372 million with performance being driven by the launches of Inlyta and Xalkori in several key markets.

Selling, informational and administrative (SI&A) expenses fell 11% to $3.5 billion during the quarter. R&D expenses fell 3% to $1.7 billion. Pfizer remains committed to its cost-containment efforts and should realize cost savings due to workforce reductions, actions taken with the R&D portfolio, as well as savings from a smaller physical footprint.

Outlook Down

Pfizer revised its outlook for 2013 to reflect the impact of the weak Japanese yen as well as the Zoetis IPO.

Pfizer expects now expects earnings of $2.14 - $2.24 per share on total revenues of $55.3 - $57.3 billion. This represents a cut from the previous guidance of earnings of $2.20 - $2.30 per share on total revenues of $56.2 - $58.2 billion.

Pfizer continues to expect SI&A spend of $15.6 to $16.6 billion and R&D spend of $6.5 to $7.0 billion.

Our Take

Pfizer’s first quarter 2013 results were disappointing with the company missing on both earnings and revenues. We expect downward revisions in estimates as the Zacks Consensus Estimate for earnings and revenues of $2.27 per share and $57.4 billion, respectively, are currently above Pfizer’s revised guidance range. Revenues will be hit by genericization and the expiration of a few co-promotion agreements.

Pfizer currently carries a Zacks Rank #3 (Hold). Stocks that look better at present include AbbVie (ABBV - Analyst Report) which carries a Zacks Rank #2 (Buy). UCB also looks well-positioned with a Zacks Rank #1 (Strong Buy).

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