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Allergan Beats on EPS, Updates View

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Allergan, Inc. (AGN - Free Report) reported third quarter 2012 earnings of $1.06 per share, slightly above the Zacks Consensus Estimate of $1.04 and the company’s guidance range of $1.02 - $1.04 per share.

While earnings increased 15.2% from the year-ago quarter, product net sales increased 6.4% to $1,413.9 million. Revenues, however, missed the Zacks Consensus Estimate of $1,427 million. Negative currency movement impacted product net sales by 3.3% in the third quarter of 2012.

The Quarter in Detail

Specialty pharmaceuticals sales increased 8.1% to $1,178.5 million, with eye care pharmaceutical sales increasing 8.4%.

Products like Restasis (up 19.4%), Alphagan franchise (up 10.8%), Latisse (up 7.2%) and the Lumigan franchise (up 3.4%) contributed to eye-care sales.

However, the company cut its Lumigan franchise guidance for 2012 by $20 million to $600 million - $620 million. Alphagan sales guidance was increased to $440 - $450 million from $420 - $440 million. Restasis guidance was also increased to $780 million - $800 million from $750 million - $780 million.  Allergan continues to expect Latisse sales of $100 million in 2012.

We note that the ophthalmology market includes players such as Merck & Co. Inc. (MRK - Free Report) and Regeneron Pharmaceuticals Inc. (REGN - Free Report) among others.

Botox sales increased 8.8% year over year to $431.6 million. Recent approvals for indications like chronic migraine and urinary continence in adults with neurological conditions most likely helped sales.

The company continues to expect 2012 Botox sales in the range of $1,760 million - $1,800 million.

Meanwhile, Allergan’s medical devices segment posted sales of $212.6 million, down 4.0%. While breast aesthetics sales increased 3.4% to $86.1 million, facial aesthetics sales increased 0.8% to $89.1 million. The obesity intervention segment continued to disappoint, with sales declining 24.7% to $37.4 million.

The company is considering a potential sale of the obesity intervention segment as an option in its efforts to maximize the returns from this business.

Other Details

Selling, general and administrative (SG&A) expenses increased 3.9% during the quarter to $537.2 million. Research and development (R&D) expenses amounted to $230.8 million, up 4.3%.

2012 Guidance Narrowed

Allergan narrowed its 2012 earnings guidance to $4.17 - $4.19 per share (old guidance: $4.15 - $4.19 per share). The company expects product net sales to range from $5,695 - $5,770 million (old guidance: $5,650 - $5,800 million). The Zacks Consensus Estimate currently stands at $4.16 per share on total revenues of $5,817 million.

For 2012, Allergan expects total specialty pharmaceuticals net sales of $4,775 million - $4,830 million (old guidance: $4,740 million - $4,850 million).

The company narrowed its medical devices net sales guidance to $920 million - $940 million from the earlier range of $910 million - $950 million. Here, performance will be driven mainly by breast aesthetics. Breast aesthetics sales are expected in the range of $380 million - $390 million (old guidance: $360 million - $380 million).

Obesity intervention sales are expected to decline to approximately $160 million (old guidance: $170 million). Facial aesthetics sales are expected in the range of $380 million - $390 million (old guidance: $380 million - $400 million).

For 2012, the company continues to expect 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 fourth quarter earnings in the range of $1.18 - $1.20 per share on product net sales of $1,470 million - $1,545 million. The Zacks Consensus Estimate for the fourth quarter of 2012 is pegged at $1.20 per share.

Allergan declared a third 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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