It has been about a month since the last earnings report for AbbVie (ABBV - Free Report) . Shares have added about 3.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is AbbVie due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
AbbVie Tops Q2 Earnings & Revenue Estimates, Ups 2018 Guidance
AbbVie reported better-than-expected earnings and sales for the second quarter of 2018. Importantly, it raised its earnings expectations for 2018 for the second time this year.
Second-quarter 2018 earnings of $2.00 per share in the second quarter beat the Zacks Consensus Estimate of $1.98 by 1%. Also, the figure grew 40.8% year over year. Earnings also exceeded the guided range of $1.94 and $1.96 per share. Strong sales performance and lower tax rate led to the bottom-line beat.
Revenues of $8.28 billion in the reported quarter marginally beat the Zacks Consensus Estimate of $8.27 billion. Sales increased 19.2% year over year. Excluding a 1.8% favorable impact from foreign exchange rate fluctuations, operational revenues rose 17.1% backed by continued strong performances by Humira and Imbruvica and continued solid uptake of new HCV medicine, Mavyret. Operational revenue growth was better than management expectations of approximately 15%. Currency tailwinds of 1.8% were however less than approximately 3% expected by the company.
Quarter in Details
Humira recorded sales growth of 10% (8.2% on an operational basis) with revenues coming in at $5.2 billion, reflecting continued strong demand trends.
Sales in the United States increased 10% to $3.52 billion driven by strong prescription volume growth across all three major market categories. Humira sales in the ex-U.S. market were up 4.4% on an operational basis and 9.8% on reported basis to $1.67 billion, driven primarily by market growth across indications. Ex-U.S. Humira sales slightly exceeded management’s expectation of approximately $1.6 billion.
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
Internationally, Humira sales are expected to approach $6.4 billion in 2018, which includes the expected impact of biosimilar entrants in Europe in the fourth quarter.
Second-quarter net revenues from Imbruvica were $850 million, up 35.6% year over year. U.S. sales of Imbruvica grossed $693 million, up 31.1% from the year-ago figure. AbbVie logged $157 million of international profit sharing with J&J.
Strong patient uptake including higher market share and growth across multiple indications, particularly CLL led to the strong performance of Imbruvica.
In 2018, Imbruvica global revenues are expected to exceed $3.4 billion (previously $3.3 billion) with sales in the United States likely to cross $2.8 billion (previously $2.7 billion).
Other products that performed well include Lupron ($223 million, up 5.5% year over year), Creon ($219 million, up 11.4%), Duodopa ($108 million, up 25.1% year over year) and Sevoflurane ($113 million, up 6.9%).
Despite competitive dynamics in the HCV market, AbbVie HCV sales, including Viekira and Mavyret, were $973 million in the quarter, up 5.9% on a sequential basis. HCV sales exceeded expectations of $950 million.
Mavyret alone accounted for nearly $932 million in the quarter driven by better-than-expected launch uptake in the United States and international markets. Mavyret commands a market leading position in the United States and has also established a strong position in other major countries as well, such as Japan, Germany, Spain, and Italy.
In 2018, global HCV sales are expected to be higher than $3.5 billion, comparing favorably with previous expectation of being approximately $3.5 billion.
Adjusted gross margin declined 180 bps to 80.5% in the quarter. Adjusted SG&A expenses increased 16.5% to $1.64 billion. However, as a percentage of sales, SG&A expenses declined 40 bps to 19.9% in the quarter, reflecting sales leverage and operational efficiencies. R&D expenses rose 4% to $1.27 billion in the quarter due to greater investments in the pipeline. Adjusted operating margin was 45.3% of sales in the reported quarter, up 90 bps year over year.
AbbVie raised its adjusted EPS guidance to the range of $7.76-$7.86 for 2018 from $7.66-$7.76 predicted earlier. A strong first-half performance coupled with an optimistic outlook for stronger underlying business performance through the rest of the year propelled the increase in earnings guidance. The earnings guidance reflects a year-over-year surge of 39.5% at the mid-point versus 38% expected previously.
Revenues are expected to approach $32.5 billion (including currency impact), slightly less than the previous expectation of $32.6 billion. Currency impact is expected to benefit revenues by less than 1% in 2018 compared with 2% expected previously.
While R&D expense is expected to be approximately 16% of revised sales outlook, SG&A is expected to be about 20.5% of sales. Operating margin is expected to be above 44%, roughly 150 basis points above 2017 levels. Previously, AbbVie expected operating margin to be approximately 43.5% of sales.
Adjusted tax rate is expected to be approximately 9% in 2018. The normalized tax rate expectation over the next five years is 13%.
Third-Quarter 2018 Outlook
Third-quarter earnings are expected between $2.00 and $2.02 per share. Revenues are estimated to grow approximately 17% on an operational basis. Foreign exchange is expected to have approximately 1% unfavorable impact on sales in the third quarter.
U.S. Humira sales are expected to grow at approximately 11% year over year. Internationally, sales are expected to be approximately $1.6 billion. Imbruvica U.S. sales are expected to be approximately $725 million. Global HCV sales are expected to be approximately $850 million, which marks a sequential decline from the second quarter. This is because management expects reduction in patient volumes in the United States in the second half and softer demand in Japan.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, AbbVie has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was 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 equally suitable for value, growth, and momentum investors.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, AbbVie has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.