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Valeant (VRX) Stock Down on Bleak View, Q1 Earnings Miss

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Shares of Valeant Pharmaceuticals International, Inc. were down 14.6% after the company slashed its guidance for 2016 due to continued weakness across most of its business franchises. Its first-quarter results were dismal as well, adding to the company’s woes.

Quarterly Results

Earnings of $1.27 decreased from $2.02 in the year-ago quarter and missed the Zacks Consensus Estimate of $1.42. However, revenues of $23.7 million were up from $21.7 million in the year-ago quarter and above the Zacks Consensus Estimate of $23.4 million.

Revenues in the Developed markets were $1.9 billion, up 11% driven by acquisitions. However, the dermatology business remained under pressure. Launch of the Walgreens business led to flat volumes and lower average selling prices. Revenues from Emerging markets were $442 million.

Cost of goods sold increased to 27% from 24% in the year-ago quarter primarily due to unfavorable foreign exchange rates, lower high-margin dermatology revenues due to changing market dynamics, and the addition of lower-margin products acquired in 2015.

Selling, general and administrative expenses increased 42% to $813 million.

Lowered Guidance

The company has lowered its guidance yet again. Revenues are now expected in the range of $9.9 billion to $10.1 billion, down from the prior projection of $11.0–$11.2 billion. Earnings per share are anticipated to be $6.60 to $7.00, down from the previous guidance of $9.50–$10.50.

The dermatology and gastrointestinal businesses continue to face challenges from lower script volume, a decline in fill rates, decreased ASPs and overall higher managed care rebates. The Salix business, on the other hand, is performing beyond management’s expectations.

Our Take

Once an acquisition giant, woes do not seem to end for Valeant. The company has been under the spotlight since Aug 2015 for all the wrong reasons including price hike of specialty drugs, erroneous financial reporting, and termination of contracts with Philidor Rx Services. However, at every turn, it seems that the going just gets tougher for Valeant. Earlier, the company had delayed its earnings release due to the review of certain accounting practices. Valeant has also received a notice of default from its debtors.

As if the delayed results were not enough, the slash in guidance hints at more troubled conditions ahead.

According to the new CEO, Joseph Papa, the first-quarter results reflect the impact of a significant disruption that the pharmaceutical company has faced over the past nine months. Management transition issues, heavy debt levels and persistent organizational distractions are expected to impact its results even further, going ahead.

Valeant currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the health care sector include Abbott Laboratories (ABT - Free Report) , ArQule Inc. and Johnson & Johnson (JNJ - Free Report) . All three stocks carry a Zacks Rank #2 (Buy).

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