1 Minor Blight Aside, Pfizer's Q1 Results Blew the Lid Off Wall Street's Expectations

Drug developer Pfizer has a storied history of delivering game-changing drugs to consumers, but it's been a long time since it's delivered a quarterly report that knocked Wall Street's socks off. Arguably, Pfizer's first-quarter earnings report, released before the opening bell on Tuesday, did exactly that.

Pfizer's Q1, by the numbers For the quarter, Pfizer reported $13 billion in revenue, a 20% improvement from the prior-year period, but 26% better than the previous year if operating results are all we consider (essentially stripping out currency moves). Adjusted income improved nearly $1 billion to $4.16 billion as adjusted EPS catapulted higher to $0.67 per share, a 32% year-over-year jump. Comparatively, Wall Street has been expecting a full $1 billion less in quarterly revenue and only $0.55 per share in EPS. Pfizer absolutely blew the lid off Wall Street's estimates.

Looking forward, Pfizer also boosted its full-year guidance in a big way. Having previously forecast $49 billion to $51 billion in full-year sales and $2.20 to $2.30 in adjusted EPS, Pfizer's new forecast calls for between $51 billion and $53 billion in revenue and $2.38 to $2.48 in adjusted EPS. Based on these headline figures alone, Wall Street seems quite appeased. But, it's what in the details of Pfizer's report that's truly impressive. With the exception of one small blemish, Pfizer delivered an exceptional quarter.

Image source: Pfizer.

Oncology shines The clear standout for Pfizer in Q1 continued to be its oncology franchise, led by advanced breast cancer drug Ibrance. In clinical trials, Ibrance led to a near-doubling in progression-free survival, and both physicians and patients appear to be taking to the drug like a duck to water. I'd suggested earlier this week that 20% sequential quarterly growth would have been phenomenal. Instead, Ibrance delivered $429 million in Q1 sales, representing sequential quarterly growth of 36%! This puts Ibrance on pace for $1.7 billion in 2016 sales, and if it can keep up its torrid pace of growth, could give the drug an outside chance at $2 billion in full-year sales. It may be time to up Ibrance's peak annual sales estimates, assuming it manages to expand its label, beyond $5 billion.

We also witnessed strong growth from Xalkori, a drug targeting a small percentage of ALK+ non-small cell lung cancer patients, and Sutent, a drug designed to treat kidney and pancreatic cancer. Operationally, Xalkori sales jumped 29%, with Sutent revenue rising 22%.

The Hospira acquisition bears fruitAnother key component to Pfizer's Q1 success has been its melding of Hospira's businesses into the fold. Although Hospira's developing biosimilar programs could be the real gem for Pfizer, Hospira's legacy injectable franchise added $1.2 billion in revenue during Q1.

Furthermore, commentary from CEO Ian Read in the company's Q1 press release notes that cost-savings from the Hospira acquisition are both higher than expected and presumably ahead of schedule. Initially, Pfizer anticipated annual cost-savings of $800 million. Now, Pfizer believes it can achieve $1 billion in expense reductions by 2018. Investors much prefer to see growth driven by demand, but with Pfizer facing one hellish decade filled with patent expirations, cost-cutting has become a critical cog to its success.

Image source: Pfizer.

A Prevnar surprisePfizer's management team has been cautioning Wall Street and investors for months that growth in pneumococcal vaccine Prevnar 13 was slated to slow down considerably in the U.S. in 2016. Pfizer has been benefiting from a recommendation issued by the Centers for Disease Control and Prevention in September 2014 that adults aged 65 and up get the Prevnar 13 vaccine. Sales of the drug jumped in a big way last year, and Pfizer's management had assumed that it'd grabbed all of the so-called low-hanging fruit (i.e., people regularly getting a pneumococcal vaccine).

The data from Q1 showed that global Prevnar family sales grew by 19% on an operating basis to $1.51 billion, once again placing it on track to surpass the $6 billion in sales mark in 2016. What was remarkable was that U.S. growth of 22% outpaced overseas operating sales growth of 13% despite management suggesting that international markets represent its greatest source of future growth for the Prevnar franchise. As with Ibrance, it might be time to up our peak annual sales expectations for Prevnar 13.

Shareholder yield in focusInvestors also received a reaffirmation in Pfizer's Q1 results that improving shareholder yield is important.

Similar to the first quarter of 2015, Pfizer announced that it had entered into an accelerated share repurchase agreement with Goldman Sachs, effectively retiring 136 million shares of common stock for a cost of $5 billion. Inclusive of dividends, Pfizer has been returning upwards of $12 billion to its shareholders since 2011, which is a testament to its exceptional free cash flow and its focus on shareholders. Between the beginning of 2011 and the end of 2015, Pfizer returned nearly $78 billion to its shareholders via dividends and stock buybacks.

Image source: Pfizer.

One blemish remains, albeit a minor one in Q1Even Pfizer's global established products (GEP) business delivered exceptional results in Q1, albeit with no help from products that have recently come off patent, such as Celebrex, Zyvox, and Lyrica in select overseas markets. Peri-LOE products, which is how Pfizer categorizes its drugs that have lost exclusivity, saw sales decline 24% year-over-year, or 18% operationally, to $1.09 billion. Now representing less than 9% of total quarterly sales, the assumption is that this lone blemish in Pfizer's otherwise fantastic report will be minimized further in the coming quarters.

The remainder of Pfizer's GEP legacy products performed quite well. Even though sales dipped 2% as a whole, on an operating basis its legacy GEP delivered a 7% improvement in sales, mostly a result of the Hospira acquisition, as well as growth from EpiPen and Tikosyn within the United States.

Is Pfizer back on your radar? Following its breakout quarter, it might be time to add Pfizer back onto your watchlist, or to dig deeper and give this drug giant serious consideration as an addition to your portfolio.

Pfizer is arguably just touching the tip of the iceberg in its next growth cycle with its oncology franchise, and to a lesser extent its innovative product portfolio, leading the charge. Throughout the remainder of the decade it'll be looking to introduce biosimilar products that could give blockbuster branded therapies a run for their money, as well as (hopefully) bring cancer immunotherapy avelumab, which is being developed with Merck KGaA, to market. At 13 times forward earnings and a 3.7% dividend yield, Pfizer is looking as attractive it's been in many years.

The article 1 Minor Blight Aside, Pfizer's Q1 Results Blew the Lid Off Wall Street's Expectations originally appeared on Fool.com.

Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.