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Earnings Beat at Endo Health

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Endo Health Solutions’ (ENDP - Free Report) fourth-quarter 2012 earnings (excluding special items) of $1.62 per share beat the Zacks Consensus Estimate of $1.56 and increased 15.7% from the year-ago period. Earnings in the final quarter of 2012 were boosted by lower costs.

Revenues came in at $803 million in the fourth quarter of 2012, flat year over year. Revenues were well short of the Zacks Consensus Estimate of $808 million.

Full-year earnings came in at $5.02 per share, well above the Zacks Consensus Estimate of $4.96 and 7% above the year-ago earnings. Full-year earnings were in line with the guidance provided by the company in Jan 2013. The company had guided toward 2012 adjusted earnings at or below the low end of the range of $5.00–$5.10 per share. Revenues climbed 11% to $3.03 billion in 2012, in line with the Zacks Consensus Estimate.

The Fourth Quarter in Details

Revenues were hurt by lower sales of Endo Health’s painkiller Opana ER (down 43%). Reduced sales of the drug were primarily responsible for 1% decline in the quarterly sales of the Endo Pharmaceuticals division (formerly branded pharmaceuticals) to $454.9 million. Sales of oncology drug Vantas dropped 38% to $5.1 million in the reported quarter. Sales of Endo Health’s key pain drug Lidoderm increased 17% in the fourth quarter of 2012 to $271.4 million.

We remind investors that in Aug 2012 the US Food and Drug Administration (FDA) cleared Actavis, Inc.’s (ACT - Free Report) generic version of Lidoderm. However, Actavis’ agreement with Endo Health prohibits the former from selling the drug prior to Sep 15, 2013.

Sales in Endo Health’s Qualitest (formerly generics) segment climbed 7% year over year to $161.9 million in the final quarter of 2012. However, segmental sales declined 2.5%. Fourth-quarter sales were hurt primarily by the company’s decision to recall hydrocodone products. Consequently, there was a significant build of back orders (worth approximately $15 million of sales). The company intends to recapture a significant part of the back orders in 2013.

Revenues from the American Medical Systems segment (formerly devices) came in at $133 million in the reported quarter, down 6%. The segment has the following sub-groups: men’s health (down 3%), women’s health (down 18%) and benign prostatic hyperplasia therapy (up 1%). Revenues from the HealthTronics segment (formerly services) came in at $51.2 million, down 1%.

Adjusted operating expenses declined 22.5% to approximately $217 million. The decline was attributable to Endo Health’s prudent cost management.

2013 View Backed

Endo Health maintained the guidance for 2013, issued by it in Jan 2013. The US-based diversified healthcare company continues to expect adjusted earnings per share for 2013 in the range of $4.40–$4.70 per share. The Zacks Consensus Estimate of $4.50 is well within the guidance range provided by Endo Health.

The company continues to expect to end 2013 with revenues in the range of $2.80–$2.95 billion. The Zacks Consensus Estimate of $3.0 billion is above the company’s projected range.

Endo Health currently carries a Zacks Rank #5 (Strong Sell). Not all stocks are performing as poorly as Endo Health. Favorably placed pharma stocks include Avanir Pharmaceuticals, Inc. and Salix Pharmaceuticals . Both companies carry a Zacks Rank #2 (Buy).

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