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Allergan Beats on EPS, Updates View

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Allergan, Inc. (AGN - Free Report) reported second quarter 2012 earnings of $1.07 per share, a penny above the Zacks Consensus Estimate and the company’s guidance range of $1.04 - $1.06 per share.

While earnings increased 11.5% from the year-ago quarter, revenues increased 5.2% to $1,491.4 million. Revenues, however, missed the Zacks Consensus Estimate of $1,502 million. Negative currency movement impacted product net sales by 3.9% in the second quarter of 2012.

The Quarter in Detail

Specialty pharmaceuticals sales increased 5.0% to $1,212.6 million, with eye care pharmaceutical sales increasing 1.9%.

Although products like Restasis (up 12.9%), Latisse (up 18.7%) and the Alphagan franchise (up 2.5%) contributed to eye-care sales, Lumigan franchise sales dropped 8.2%. The company cut its Lumigan franchise guidance for 2012 to $620 million - $640 million from $640 million - $670 million.

Alphagan sales guidance was increased by $10 million to $420 - $440 million. Restasis guidance was also increased by $10 million to $750 million - $780 million.  Allergan continues to expect Latisse sales of $100 million in 2012.

Botox sales increased 10.2% year over year to $461.2 million. Recent approvals for indications like chronic migraine and urinary continence in adults with neurological conditions most likely helped sales.

The company launched a promotion program in mid-April providing incentives to physicians and rebate coupons to patients encouraging them to combine orders and treatments of Juvederm with Botox. 2012 Botox sales are expected in the range of $1,760 million - $1,800 million (old guidance: $1,750 million - $1,800 million).

Meanwhile, Allergan’s medical devices segment posted sales of $254.8 million, up 4.0%. While breast aesthetics sales increased 6% to $101.2 million, facial aesthetics sales increased 18% to $112.3 million. The obesity intervention segment continued to disappoint, with sales declining 24.1% to $41.3 million.

Other Details

Selling, general and administrative (SG&A) expenses increased 1.6% during the quarter to $572.4 million. Research and development (R&D) expenses amounted to $231.9 million, up 9.2%.

2012 Guidance Narrowed

Allergan narrowed its 2012 earnings guidance to $4.15 - $4.19 per share (old guidance: $4.13 - $4.19 per share). The company expects product net sales to range from $5,650 - $5,800 million (old guidance: $5,650 - $5,850 million). The Zacks Consensus Estimate currently stands at $4.17 per share on total revenues of $5,852 million.

For 2012, Allergan expects total specialty pharmaceuticals net sales of $4,740 million - $4,850 million (old guidance: $4,710 million - $4,870 million).

The company lowered its medical devices net sales guidance to $910 million - $950 million from the earlier range of $940 million - $980 million. Here, performance will be driven mainly by breast aesthetics (guidance: $360 million - $380 million). Obesity intervention sales are expected to decline in 2012 to approximately $170 million. Facial aesthetics sales are expected in the range of $380 million - $400 million (old guidance: $410 million - $430 million).

For 2012, the company expects cost of sales to product net sales ratio of about 14%, SG&A expenses to product net sales ratio of about 39% and R&D expenses to product net sales ratio of 16%.

The company expects third quarter earnings in the range of $1.02 - $1.04 per share on product net sales of $1,370 million - $1,445 million. Third quarter guidance was below the Zacks Consensus Estimate of $1.06 per share.

Allergan declared a second quarter 2012 dividend of $0.05 per share.

Neutral on Allergan

We currently have a Neutral recommendation on Allergan, which carries a Zacks #3 Rank (short-term Hold rating). While the company is facing headwinds in the form of negative currency movement and pricing pressure, we believe Allergan’s presence across different segments will help maintain growth going forward.

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