Endo International plc’s second-quarter 2016 earnings of 86 cents per share significantly beat the Zacks Consensus Estimate of 75 cents. However, reported earnings decreased 20% from the year-ago period.

Revenues came in at $920.9 million in the second quarter of 2016, up 25% year over year primarily attributable to revenues related to the Sep 2015 Par acquisition. Revenues also came in above the Zacks Consensus Estimate of $878.3 million.

The Quarter in Details

The company reports results through three segments – Branded Pharmaceuticals (U.S.), Generic Pharmaceuticals (U.S.) and International Pharmaceuticals.

U.S. Branded Pharmaceuticals sales were down 9% to $288 million, primarily due to a generic entrant for Voltaren Gel in Mar 2016. Voltaren Gel sales declined 46% due to a decrease in both volume and price reflecting the loss of exclusivity in Mar 2016. Xiaflex sales increased 6% reflecting continued double-digit demand growth for the product in both the Dupuytren's contracture and Peyronie's disease indications, partially offset by customer de-stocking in the quarter.

Endo reported generic product net sales of $565 million in the quarter, up 67%. The addition of products as a result of the Par acquisition led to higher segmental sales. However, the Generics base business revenues declined approximately 5% sequentially due to consortium pricing pressure and additional competitive entrants.

During second-quarter 2016, the U.S. Generic Pharmaceuticals business unit substantially completed the Par integration, implemented the initial phase of the supply chain restructuring and product rationalization activities that were announced in May 2016, and continued to execute on its sales and marketing, research and development (R&D), and manufacturing plans for the year.

We note that this restructuring is expected to result in approximately $60 million in annualized net run-rate savings by the fourth quarter of 2017. Meanwhile, the company has increased investment in Branded and Generics R&D as well as raised promotional efforts for Belbuca and Xiaflex.

The International Pharmaceuticals division contributed $67 million, down 17% from the year-ago period and approximately 6% sequentially.

2016 Outlook Maintained

Endo reiterated its outlook for 2016. The company continues to expect revenues in the range of $3.87 billion to $4.03 billion. It still expects earnings in the range of $4.50 to $4.80 per share.

Gross margin is also expected in the range of approximately 59–60%.

In a separate press release, Endo announced the appointment of Joseph J. Ciaffoni to the position of President, U.S. Branded Pharmaceuticals effective Aug 15, 2016.

Our Take

Endo’s second-quarter results were better than expected with the company beating on both top- and bottom-line estimates. We expect investors to react positively to the news. Though its business units performed as per expectations laid out by the company at the time of announcing first-quarter results, the earlier-than-expected entry of a generic version of Voltaren Gel and continued pricing and competitive pressure are concerning. However, prioritization of resources across Belbuca and Xiaflex should help drive the products’ sales.

Endo is currently a Zack Rank #3 (Hold) stock. Some better-ranked stocks in the health care sector include Corcept Therapeutics Incorporated (CORT Quick QuoteCORT - Free Report) , ANI Pharmaceuticals, Inc. (ANIP Quick QuoteANIP - Free Report) and Geron Corporation (GERN Quick QuoteGERN - Free Report) . All three stocks sport a Zacks Rank #1 (Strong Buy).

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