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Why Is AbbVie (ABBV) Up 17.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for AbbVie (ABBV - Free Report) . Shares have added about 17.5% 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 catalysts.

AbbVie Q3 Earnings Beat Estimates, 2018 EPS View Up

Third-quarter 2018 earnings of $2.14 per share beat the Zacks Consensus Estimate of $2.01. The figure surged 51.8% year over year. Earnings per share also exceeded the guided range of $2.00 and $2.02. Strong sales, operating margins and lower tax rate led to the bottom-line beat.

Revenues of $8.24 billion marginally missed the Zacks Consensus Estimate of $8.26 billion. Sales rose 17.8% on a reported basis. Excluding a 0.7% unfavorable impact from foreign exchange rate fluctuations, operational revenues rose 18.5% backed by continued strong performances by Humira and Imbruvica. Operational revenue growth was better than the expectation of approximately 17%.

Currency tailwinds of 0.7% were in line with management expectation of a negative impact of approximately 1%.

Quarter in Details

Humira sales rose 9% (9.8% on an operational basis) to $5.1 billion. Sales in the United States increased 12.5% to $3.5 billion, better than expectation of 11% growth. The sales growth was driven by strong prescription volume growth and favorable pricing. Humira sales in the ex-U.S. markets were up 4.2% on an operational basis and 1.8% on reported basis to $1.58 billion, almost in-line with the projected figure of $1.6 billion.

In the U.S. market, Humira sales are expected to be approximately $13.7 billion in 2018. Internationally, Humira sales are expected to approach $6.3 billion in 2018 (previously $6.4 billion), which includes the expected impact of biosimilar entrants in Europe in the fourth quarter. In 2019, international Humira sales are expected to decline in the range of 26-27%.

AbbVie’s oncology/hematology (including Imbruvica and Venclexta) sales rose 48.1% to $1.07 billion in the quarter. Third-quarter net revenues from Imbruvica were $972 million, up 41.3% year over year primarily driven by market share gains across all lines of therapy in CLL as well as favorable pricing. U.S. sales of Imbruvica grossed $812 million, up 41.5% from the year-ago figure. AbbVie logged $160 million of international profit sharing with J&J, up 40.1% year over year.

In 2018, Imbruvica global revenues are expected to exceed $3.5 billion (previously $3.4 billion) with sales in the United States likely to cross $2.9 billion (previously $2.8 billion).

Venclexta brought in revenues of $96 million, up more than 100% year over year driven by uptake in the second-line plus setting following approval in the broad relapsed/refractory CLL segment (MURANO study) in June.

HCV products, including Viekira and Mavyret, recorded sales of $862 million, up more than 100% year over year, on the back of strong demand for Mavyret, which was launched in the second half of 2017. Though global HCV sales were higher than management’s expectation of $850 million, it declined sequentially from the second quarter due to lower international sales as a result of fewer warehoused patients in certain markets.

Mavyret alone accounted for nearly $839 million in the quarter, up more than 100% year over year driven by rapid uptake. On the call, the company said that Mavyret commands roughly 50% market share globally.

In 2018, global HCV sales are expected to be higher than $3.5 billion.

Other products that performed well include Lupron ($214 million, up 7.5% year over year), Creon ($239 million, up 11.3%), Duodopa ($106 million, up 13.3%) and Kaletra ($88 million, up 6%).

Margins Rise

Adjusted gross margin rose 90 bps to 81.7% in the quarter. Adjusted SG&A expenses increased 8.4% to $1.56 billion. However, as a percentage of sales, SG&A expenses declined 170 bps to 19.1% in the quarter, reflecting sales leverage and operational efficiencies. R&D expenses escalated 6% to $1.27 billion in the quarter due to greater investments in the pipeline. Adjusted operating margin was 47.2% of sales in the reported quarter, up 430 bps year over year.

AbbVie’s board of directors announced 11.5% increase in its quarterly dividend from $0.96 per share to $1.07 per share. The first increased dividend will be paid on Feb 15, 2019 to shareholders of record as of Jan 15, 2019

2018 Outlook

AbbVie raised its adjusted EPS guidance to the range of $7.90-$7.92 for 2018 from $7.76-$7.86 predicted earlier. The earnings guidance indicates a year-over-year surge of 41.3% at the mid-point.

Revenues are expected to approach $32.7 billion (including currency impact), higher than the previous expectation of $32.5 billion. Total revenues are expected to grow 15% operationally. Currency impact is expected to benefit revenues by less than 1% in 2018.

Adjusted gross margin is expected to be above 80.5% of sales in 2018.

Operating margin is expected to be approximately 45%. Previously, AbbVie expected operating margin to be above 44% of sales.

Fourth-Quarter 2018 Outlook

Fourth-quarter earnings are expected between $1.89 and $1.91 per share, indicating year-over-year growth of more than 28% at the midpoint. Revenues are estimated to grow above 7% on an operational basis. Foreign exchange is expected to have less than 1% unfavorable impact on sales in the fourth quarter.

Preliminary Outlook for 2019

AbbVie said it is confident of delivering double-digit earnings growth in 2019 despite negative impact from EU Humira biosimilar entry, a difficult comparison year (as HCV sales ramped up rapidly in 2018) and significant investments to support product launches.
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, AbbVie has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, AbbVie has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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