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Why Is Mallinckrodt (MNK) Down 47.4% Since Last Earnings Report?

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It has been about a month since the last earnings report for Mallinckrodt (MNK - Free Report) . Shares have lost about 47.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Mallinckrodt due for a breakout? 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 catalysts.

Mallinckrodt Beats on Q1 Earnings & Sales, Raises View

Mallinckrodt reported better-than-expected results for the first quarter of 2019, led by strong performance of hospital products. The company also raised its guidance.

The company reported adjusted earnings of $1.94 per share in the quarter, up from the year-ago quarter’s $1.62. Also, the bottom line beat the Zacks Consensus Estimate of $1.73.

Net sales in the quarter came in at $790.6 million, up 4.7% year over year. The figure surpassed the Zacks Consensus Estimate of $771.5 million.

Quarter in Detail

The company now operates two reportable segments aligned to the previously-announced separation — the Specialty Brands and the Specialty Generics (includes Amitiza).

Specialty brand sales came in at $547.3 million, down 0.4% year over year.
Acthar, Mallinckrodt’s largest product, generated sales of $223.9 million, down 8.2% due to reset process impacting returning patients.

Inomax, the company’s second-largest product, generated sales of $151.1 million, up 8.1% driven by continued and consistent demand and contract renewals. Ofirmev sales increased 16.6% year over year to $95.6 million, owing to strong demand and order timing.

Sales of the Therakos immunology platform were $61.8 million, up 7.7%.

Specialty Generics and Amitiza sales amounted to $243.3 million, up 17.6%. Amitiza posted net sales of $53.0 million, while Specialty Generics products net sales returned to growth with $190.3 million, up 3.5% driven by recapture of market share.

Adjusted selling, general and administrative expenses in the quarter were $211.4 million, up from $207.9 million in the year-ago quarter. Meanwhile, research and development expenses increased 4% to $85.3 million.

During the quarter, the company reduced total debt by $263.5 million.

Guidance Update

Total sales for Specialty Brands are expected to increase 1-4%. Total sales for Specialty Generics and Amitiza are now expected to increase 2-5% (previous guidance: 1-4%). Earnings per share are now projected to be $8.30-$8.60, up from the previous projection of $8.10-$8.40.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Mallinckrodt has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% 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 looks promising. Notably, Mallinckrodt has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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