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AstraZeneca (AZN) Beats on Q3 Earnings; Sales Slow Down

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AstraZeneca PLC (AZN - Free Report) reported third-quarter 2016 core earnings of $1.32 per American Depositary Share, comfortably beating the Zacks Consensus Estimate of 48 cents. Core earnings rose 12% year over year at constant currency rates (CER).

Core earnings increased on the back of cost savings and a non-recurring tax benefit of 36 cents per share resulting from agreements on transfer pricing arrangements between various tax authorities.

 

However, sales were softer in the quarter

Total revenue declined 4% at CER to $5.70 billion in the third quarter. Revenues also fell short of the Zacks Consensus Estimate of $5.95 billion.

Among the key growth platforms (representing 60% of total revenues), while Diabetes, Emerging Markets and New Oncology performed well in the quarter, Respiratory and Japan sales declined and Brilinta/Brilique saw sequentially softer sales growth.

All growth rates mentioned below are on a year-over-year basis and at CER.

Quarter in Detail

Product sales declined 14% in the quarter to $5.03 billion while externalisation revenues were $674 million.

U.S. product sales declined 35% to $1.54 billion primarily due to the loss of exclusivity of Crestor in May 2016 and the ongoing impact of Nexium generic medicines. European markets witnessed a 1% decline in sales to $1.27 billion, reflecting the ongoing price erosion. Revenues from Emerging Markets were, however, up 3% to $1.4 billion in the reported quarter supported by strong growth in China (up 10% to $643 million).

As far as AstraZeneca’s core products are concerned, both Nexium and Crestor sales declined in the reported quarter.

Nexium recorded sales of $516 million (down 21%), with the U.S. contributing $125 million (down 50%) and Europe accounting for $63 million (down 2%). Moreover, Crestor sales declined 44% to $688 million, with the U.S. accounting for $124 million (down 82%) and Europe contributing $219 million (flat). U.S. sales declined sharply in the third quarter as multiple generic versions of the drug entered the market in July.

Products that recorded growth in the quarter include Farxiga/Forxiga (up 64% to $220 million), Daliresp/Daxas (up 27% to $42 million), Pulmicort (up 4% to $224 million), Faslodex (up 11% to $207 million), Lynparza (up 111% to $58 million), Duaklir (up 88% to $14 million) and Seloken/Toprol-XL (up 12% to $185 million). The newly launched medicine Tagrisso recorded sales of $133million, up 45% sequentially driven by new patient starts and treatment duration.

Brilinta/Brilique sales were $208 million in the reported quarter, up 25%. However, sales declined almost 3% sequentially due to U.S. wholesaler stocking in the year-ago quarter during the launch of the 60mg dose. However, Europe and China, among emerging markets, continued to do well.

Other Details

AstraZeneca’s core gross margin was down 0.5 percentage points to 84.1%. Core selling, general and administrative (SG&A) expenses decreased 12% to $1.89 billion due to the company’s productivity initiatives.

During the quarter, core research and development (R&D) expenses were flat at $1.33 billion.

2016 Outlook

AstraZeneca has reiterated its outlook for 2016. The company continues to expect both total revenue and core earnings to decline in the low-to-mid single-digit percentage range in 2016. The guidance takes into account dilution from the Acerta Pharma and ZS Pharma acquisitions that were announced in 2015. Based on average exchange rates in the first nine months of the year, currency movements are expected to minimally impact the top line in 2016.

While adjusted R&D costs are expected to be above the 2015 levels, SG&A will be materially lower than last year.

Our Take

AstraZeneca’s third-quarter 2016 results were mixed, with the company beating the bottom-line estimates while missing the same for sales. The company has been quite active on the acquisition and partnering front, and expects to continue to pursuing strategically profitable deals.

ASTRAZENECA PLC Price and EPS Surprise

 

ASTRAZENECA PLC Price and EPS Surprise | ASTRAZENECA PLC Quote

A number of regulatory decisions, submissions and key data readouts are expected in 2017.

However, we remain concerned about the declining sales of Nexium and Crestor due to generic competition.

AstraZeneca has a Zacks Rank #3 (Hold). Some better-ranked stocks in the health care sector include Anika Therapeutics Inc. (ANIK - Free Report) , Cambrex Corporation (CBM - Free Report) and Merck & Co., Inc. (MRK - Free Report) . While Anika and Cambrex  sport a Zacks Rank #1 (Strong Buy), Merck carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Anika’s earnings estimates have increased 5% for 2016 and 3% for 2017 over the last 30 days. The company posted a positive earnings surprise in each of the four trailing quarters, with an average beat of 33.1%. Its share price has increased 19% year to date.

Cambrex’s earnings estimates have increased almost 4% for 2016 and 5% for 2017 over the last 30 days. The company has posted a positive earnings surprise in three of the four trailing quarters, with an average beat of 19.78%. Its share price has increased 8% year to date.

Merck’s share price has increased 23% year to date. Its performance has been pretty impressive, with earnings beating expectations consistently. The average earnings beat over the last four quarters is 4.30%. It reported strong third-quarter results, encouraging 7 out of 11 estimates to move north over the last 30 days for both 2016 and 2017.

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