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AbbVie (ABBV) Up 5.9% Since Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for AbbVie Inc. (ABBV - Free Report) . Shares have added about 5.9% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is ABBV due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
AbbVie reported better-than-expected earnings and sales for the first quarter of 2018. Importantly, it raised its earnings expectations for 2018 based on strong Q1 performance and an optimistic outlook for future quarters.
AbbVie reported first-quarter 2018 earnings of $1.87 per share, beating the Zacks Consensus Estimate of $1.80 by 3.9% and ahead of the guided range of $1.77 and $1.79. Earnings grew 46.1% year over year. Strong sales performance and higher operating profits led to the bottom-line beat.
Revenues of $7.9 billion in the reported quarter marginally beat the Zacks Consensus Estimate of $7.7 billion. Sales increased 21.4% year over year. Excluding a 3.8% favorable impact from foreign exchange rate fluctuations, operational revenues rose 17.6% backed by continued strong performances by Humira and Imbruvica and solid uptake of new HCV medicine, Mavyret. Operational revenue growth was in line with management expectations of growth in a mid-teen range. Currency tailwinds of 3.8% were also better than 3% expected by the company.
Quarter in Details
Humira recorded sales growth of 14.4% (10.7% on an operational basis) with revenues coming in at $4.7 billion, reflecting continued strong demand trends.
Sales in the United States increased 11.4% to $3 billion driven by strong prescription volume growth across all three major market categories. Humira sales in the ex-U.S. market were up 9.3% on an operational basis and 20% on a reported basis to $1.71 billion driven primarily by market growth across indications.
Humira holds the leading market position as a front-line therapy in all three major market categories despite stiffer competition from new classes of drugs as well as an indirect biosimilar competition in the international markets
However, on the call, AbbVie said that retail specialty pharmacy destocking hurt sales of Humira somewhat in the quarter.
In 2018, Humira sales in the United States are expected to be approximately $13.7 billion, which is lower than the prior expectation of $14.0 billion-$14.1 billion. Humira U.S. sales expectations were softer than the previous outlook due to the impact of a retail specialty pharmacy destocking in the first quarter and a conservative stance on co-pay costs associated with co-pay accumulator programs.
Internationally, Humira sales are expected to approach $6.4 billion, up from $6.2 billion previously, which includes the expected impact of biosimilar entrants in Europe in the fourth quarter.
First-quarter net revenues from Imbruvica were $762 million, up 38.5% year over year. This included U.S. sales of $624 million, up 36.7%, and $138 million (up 47.2%) of international profit sharing with Johnson & Johnson.
Continued uptake in the front-line CLL market and steady gains across other indications led to the strong performance of Imbruvica.
In 2018, Imbruvica global revenues are expected to exceed $3.3 billion with sales in the United States likely to cross $2.7 billion.
Other products that performed well include Lupron ($219 million, up 13.3% year over year) Duodopa ($103 million, up 28.9% year over year) and Creon ($209 million, up 13%).
Despite competitive dynamics in the HCV market, AbbVie HCV sales, including Viekira and Mavyret, were $919 million in the quarter, up 80.2% on a sequential basis. Mavyret alone accounted for nearly $850 million in the quarter driven by better-than-expected launch uptake in the United States and international markets. Mavyret commands a market share of 45% in the United States with less than a year on the market. The medicine has also established a strong position in other major countries as well, such as Japan, Germany, Spain, and Italy. Viekira sales declined in the quarter.
In 2018, global HCV sales are expected to be approximately $3.5 billion, higher than $2.5 billion expected previously.
Adjusted gross margin rose 30 bps to 80.2% in the quarter. Adjusted SG&A expenses increased 21.4% to $1.67 billion. As a percentage of sales, SG&A expenses rose 20 bps to 21.0% in the quarter, reflecting new product launch costs. R&D expenses escalated 7.2% to $1.19 billion in the quarter due to greater investments in the pipeline. Adjusted operating margin was 44.1% of sales in the reported quarter, up 200 bps year over year.
2018 Outlook
AbbVie raised its adjusted EPS guidance to a range of $7.66-$7.76 for 2018 compared with $7.33-$7.43 predicted earlier. A strong first-quarter performance coupled with an optimistic outlook for stronger underlying business performance through the rest of the year and the benefit from the planned share buybacks through the ‘Dutch’ tender offer propelled the increase in earnings guidance. The earnings guidance reflects a year-over-year surge of 38% at the mid-point versus 32% previously.
Revenues are expected to approach $32.6 billion, up from the previous expectation of $32 billion. Currency impact is expected to benefit revenues by 2% in 2018 compared with 1.5% expected previously.
While R&D expense is expected to be slightly more than 16% of revised sales outlook, SG&A is expected to be about 20.5% of sales. Operating margin is expected to be above 43.5%, roughly 100 basis points above 2017 levels. Previously, AbbVie expected operating margin to be approximately 44% of sales. AbbVie decreased the projected 2018 operating margin expectations as it plans to increase investments in upcoming product launches.
Adjusted tax rate is expected to be approximately 9% in 2018. The normalized tax rate expectation over the next five years is 13%.
Second-Quarter 2018 Outlook
Second-quarter earnings are expected between $1.94 and $1.96. Revenues are estimated to grow approximately 15% on an operational basis. Foreign exchange is expected to have approximately 3% favorable impact on sales in the second quarter.
U.S. Humira sales are expected to grow at approximately 10% year over year. Internationally, sales are expected to be approximately $1.6 billion. Imbruvica U.S. sales are expected to be approximately $700 million. Global HCV sales are expected to be approximately $950 million with approximately 40% of those sales coming from U.S. sales.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been six revisions higher for the current quarter.
At this time, ABBV has a nice Growth Score of B, however its Momentum is doing a bit better with an A. The stock was also allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.
Outlook
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. Notably, ABBV has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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AbbVie (ABBV) Up 5.9% Since Earnings Report: Can It Continue?
A month has gone by since the last earnings report for AbbVie Inc. (ABBV - Free Report) . Shares have added about 5.9% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is ABBV due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
AbbVie Tops Q1 Earnings & Revenue Estimates, Ups 2018 Guidance
AbbVie reported better-than-expected earnings and sales for the first quarter of 2018. Importantly, it raised its earnings expectations for 2018 based on strong Q1 performance and an optimistic outlook for future quarters.
AbbVie reported first-quarter 2018 earnings of $1.87 per share, beating the Zacks Consensus Estimate of $1.80 by 3.9% and ahead of the guided range of $1.77 and $1.79. Earnings grew 46.1% year over year. Strong sales performance and higher operating profits led to the bottom-line beat.
Revenues of $7.9 billion in the reported quarter marginally beat the Zacks Consensus Estimate of $7.7 billion. Sales increased 21.4% year over year. Excluding a 3.8% favorable impact from foreign exchange rate fluctuations, operational revenues rose 17.6% backed by continued strong performances by Humira and Imbruvica and solid uptake of new HCV medicine, Mavyret. Operational revenue growth was in line with management expectations of growth in a mid-teen range. Currency tailwinds of 3.8% were also better than 3% expected by the company.
Quarter in Details
Humira recorded sales growth of 14.4% (10.7% on an operational basis) with revenues coming in at $4.7 billion, reflecting continued strong demand trends.
Sales in the United States increased 11.4% to $3 billion driven by strong prescription volume growth across all three major market categories. Humira sales in the ex-U.S. market were up 9.3% on an operational basis and 20% on a reported basis to $1.71 billion driven primarily by market growth across indications.
Humira holds the leading market position as a front-line therapy in all three major market categories despite stiffer competition from new classes of drugs as well as an indirect biosimilar competition in the international markets
However, on the call, AbbVie said that retail specialty pharmacy destocking hurt sales of Humira somewhat in the quarter.
In 2018, Humira sales in the United States are expected to be approximately $13.7 billion, which is lower than the prior expectation of $14.0 billion-$14.1 billion. Humira U.S. sales expectations were softer than the previous outlook due to the impact of a retail specialty pharmacy destocking in the first quarter and a conservative stance on co-pay costs associated with co-pay accumulator programs.
Internationally, Humira sales are expected to approach $6.4 billion, up from $6.2 billion previously, which includes the expected impact of biosimilar entrants in Europe in the fourth quarter.
First-quarter net revenues from Imbruvica were $762 million, up 38.5% year over year. This included U.S. sales of $624 million, up 36.7%, and $138 million (up 47.2%) of international profit sharing with Johnson & Johnson.
Continued uptake in the front-line CLL market and steady gains across other indications led to the strong performance of Imbruvica.
In 2018, Imbruvica global revenues are expected to exceed $3.3 billion with sales in the United States likely to cross $2.7 billion.
Other products that performed well include Lupron ($219 million, up 13.3% year over year) Duodopa ($103 million, up 28.9% year over year) and Creon ($209 million, up 13%).
Despite competitive dynamics in the HCV market, AbbVie HCV sales, including Viekira and Mavyret, were $919 million in the quarter, up 80.2% on a sequential basis. Mavyret alone accounted for nearly $850 million in the quarter driven by better-than-expected launch uptake in the United States and international markets. Mavyret commands a market share of 45% in the United States with less than a year on the market. The medicine has also established a strong position in other major countries as well, such as Japan, Germany, Spain, and Italy. Viekira sales declined in the quarter.
In 2018, global HCV sales are expected to be approximately $3.5 billion, higher than $2.5 billion expected previously.
Adjusted gross margin rose 30 bps to 80.2% in the quarter. Adjusted SG&A expenses increased 21.4% to $1.67 billion. As a percentage of sales, SG&A expenses rose 20 bps to 21.0% in the quarter, reflecting new product launch costs. R&D expenses escalated 7.2% to $1.19 billion in the quarter due to greater investments in the pipeline. Adjusted operating margin was 44.1% of sales in the reported quarter, up 200 bps year over year.
2018 Outlook
AbbVie raised its adjusted EPS guidance to a range of $7.66-$7.76 for 2018 compared with $7.33-$7.43 predicted earlier. A strong first-quarter performance coupled with an optimistic outlook for stronger underlying business performance through the rest of the year and the benefit from the planned share buybacks through the ‘Dutch’ tender offer propelled the increase in earnings guidance. The earnings guidance reflects a year-over-year surge of 38% at the mid-point versus 32% previously.
Revenues are expected to approach $32.6 billion, up from the previous expectation of $32 billion. Currency impact is expected to benefit revenues by 2% in 2018 compared with 1.5% expected previously.
While R&D expense is expected to be slightly more than 16% of revised sales outlook, SG&A is expected to be about 20.5% of sales. Operating margin is expected to be above 43.5%, roughly 100 basis points above 2017 levels. Previously, AbbVie expected operating margin to be approximately 44% of sales. AbbVie decreased the projected 2018 operating margin expectations as it plans to increase investments in upcoming product launches.
Adjusted tax rate is expected to be approximately 9% in 2018. The normalized tax rate expectation over the next five years is 13%.
Second-Quarter 2018 Outlook
Second-quarter earnings are expected between $1.94 and $1.96. Revenues are estimated to grow approximately 15% on an operational basis. Foreign exchange is expected to have approximately 3% favorable impact on sales in the second quarter.
U.S. Humira sales are expected to grow at approximately 10% year over year. Internationally, sales are expected to be approximately $1.6 billion. Imbruvica U.S. sales are expected to be approximately $700 million. Global HCV sales are expected to be approximately $950 million with approximately 40% of those sales coming from U.S. sales.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been six revisions higher for the current quarter.
AbbVie Inc. Price and Consensus
AbbVie Inc. Price and Consensus | AbbVie Inc. Quote
VGM Scores
At this time, ABBV has a nice Growth Score of B, however its Momentum is doing a bit better with an A. The stock was also allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.
Outlook
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. Notably, ABBV has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.