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Novo Nordisk (NVO) Q4 Earnings Miss Estimates, Revenues Beat

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Novo Nordisk A/S (NVO - Free Report) reported fourth-quarter 2018 earnings of 53 cents, per American Depositary Receipt (“ADR”), which missed the Zacks Consensus Estimate of 57 cents. The reported figure was flat compared with the year-ago quarter.

Quarterly revenues were up 3% year over year (up 6% in local currency) to $4.55 billion. The top line beat the Zacks Consensus Estimate of $4.36 billion.

In the past year, Novo Nordisk’s shares have declined 7.6%, against the industry’s growth of 3.3%.

 

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

Quarter in Detail

Novo Nordisk operates through two segments: Diabetes and Obesity care, and Biopharmaceuticals.

Sales in the fourth quarter of 2018 increased 6% in both Danish kroner and local currency. Growth was driven by Ozempic, Tresiba, Xultophy, Saxenda, NovoRapid and Fiasp, partly offset by Levemir, and NovoSeven and NovoMix.

The Diabetes and Obesity Care segment sales increased 7% in local currency. Sales of insulin remained unchanged. Sales of long-acting insulin (Tresiba, Xultophy and Levemir) decreased 2% in local currency to DKK 5,456 million.

Sales at the Biopharmaceuticals segment remained unchanged in local currency. Hemophilia sales were down 10%.

Research and development (R&D) expenses were up14% in Danish kroner and 16% in local currencies. The increase in R&D costs reflects the expenses of the priority review voucher for oral semaglutide.There was an underlying decline in development costs for oral semaglutide, due to the finalization of the PIONEER trials and lower costs for the development of Ozempic and Fiasp, partly offset by increased costs for injectable semaglutide in obesity.

Also, administrative costs were up 14% in Danish kroner and 15% in local currency, mainly due to higher expenditure across regions and severance costs related to layoffs.

Sales and distribution costs increased 5%  in Danish kroner and 2% in local currency, owing to higher promotional activities in both International Operations and North America Operations, and severance costs related to layoffs across the commercial organization. In North America Operations, the increase in costs reflected promotional activities for Tresiba and the launch of Ozempic.

Pipeline Update

Novo Nordisk has decided to submit the application for oral semaglutide around the end of first-quarter 2019 and notified the FDA that it will request priority review of the oral semaglutide filing, based on a priority review voucher. Novo Nordisk still expects to file for oral semaglutide for EU approval during the first half of 2019.

Dividend

At the Annual General Meeting on Mar 21, 2019, the board of directors will propose a final dividend of DKK 5.15 for each Novo Nordisk A and B share of DKK 0.20.. The expected total dividend for 2018 of DKK 8.15 per share, of which DKK 3.00 was paid as interim dividend in August 2018, corresponds to an increase of 4% compared to that in 2017. The board of directors intends to initiate a new 12-month share repurchase program of up to DKK 15 billion.

2018 Results

For the full year the company reported earnings of $2.52 per share. Sales increased 5% in local currencies to $17.72 billion for full year 2018.

2019 Outlook

Novo Nordisk expects sales growth (in local currencies) of 2-5%. This reflects strong performance for the portfolio of new-generation insulin and the GLP-1 portfolio, now comprising both Victoza and Ozempic as well as a solid contribution from Saxenda. However, sales growth is expected to be partly offset by intensifying global competition within Diabetes Care and Biopharmaceuticals, especially in the haemophilia inhibitor segment.

Continued pricing pressure within Diabetes Care, especially in the United States, is also expected to negatively impact sales growth. A positive currency impact of 2 percentage points is expected as well.

Operating profit growth is anticipated to be 2-6%, reflecting the outlook for sales growth and an impact from continued focus on cost control. Growth reported in Danish kroner is expected to be around 4 percentage points higher than that in local currencies.

Our Take

Continued growth from Victoza and Tresiba, and higher contributions from Saxenda and Xultophy are likely to be partly offset by the impact of lower realized prices in the Unites States, loss of exclusivity for products in hormone replacement therapy, and intensifying competition within the diabetes and biopharmaceuticals markets, besides macroeconomic conditions in many markets under International Operations. The company is optimistic about Ozempic and results for oral semaglutide. It is looking forward to making the first oral GLP-1 treatment available for people with type II diabetes.

 

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Zacks Rank & Stocks to Consider

Novo Nordisk is a Zacks Rank #3 (Hold) stock.

Some better-ranked stocks from the same space worth considering are H Lundbeck A/S (HLUYY - Free Report) , Eli Lilly and Co. (LLY - Free Report) and Bristol-Myers Squibb Co. (BMY - Free Report) . While H Lundbeck sports a Zacks Rank #1 (Strong Buy), Lilly and Bristol-Myers carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Lilly’s earnings per share estimates have increased from $5.47 to $5.58 for 2018 and from $5.78 to $5.87 for 2019 in the past 90 days. The company delivered a positive earnings surprise in all the trailing four quarters, with average of 10.03%.

Bristol-Myers’ earnings per share estimates have increased from $4.06 to $4.16 for 2019 over the past 60 days. The company delivered a positive earnings surprise in all of the trailing four quarters, with average of 14.26%.

H Lundbeck’s’s earnings per share estimates have increased from $3.51 to $3.66 for 2018 and from $2.87 to $3.02 for 2019 over the past 60 days. The company delivered a positive earnings surprise in one of the trailing four quarters, with average of 38.27%.

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