Pfizer, Inc. (NYSE: PFE) reported its first-quarter results before the market opened on Tuesday. The big drugmaker's revenue of $12.8 billion reflected a 2% drop from the prior-year period.
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Falling sales isn't usually a good sign. Should Pfizer investors be concerned? Nope. Here are three reasons why the first-quarter revenue dip isn't a big deal.
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1. Not an apples-to-apples comparison with the prior-year period
Looking at the first-quarter results from 2016 side by side with the results from 2017 isn't an apples-to-apples comparison. For one thing, there was one less selling day in the U.S. during the first quarter of 2017 (due to the absence of a leap day), and there were two fewer international selling days. Even a day or two makes a difference.
More important, though, is that Pfizer sold its Hospira Infusion Systems (HIS) business to ICU Medicalfor $900 million. That transaction completed on Feb. 3, 2017. As a result, Pfizer's first-quarter 2017 revenue decreased.
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Adjusting out the HIS sale to ICU Medical and the negative impact of foreign exchange, Pfizer's revenue grew, although only by 1%. The company continues to be hurt by declining sales for its Prevnar 13 vaccine, legacy established products, and peri-LOE products (which will have or will soon face loss of exclusivity).
2. Earnings increased even with lower revenue
Even though Pfizer's first-quarter revenue fell from the prior-year period, earnings actually increased. The company reported first-quarter net income of $3.12 billion, up 3% year over year. GAAP diluted earnings per share increased 6% from the first quarter of 2016 to $0.51. Adjusted diluted earnings per share grew 3% year over year to $0.69.
Not only did Pfizer's earnings grow, the company also beat Wall Street expectations. The consensus analyst estimate was for first-quarter earnings of $0.67. Pfizer topped that estimate by $0.02.
When revenue drops but earnings rise, it means that costs went down. Pfizer reported significantly lower costs of sales in the first quarter. Selling, informational, and administrative costs were also down a little year over year, as were research and development costs.
Per-share comparisons were also helped by Pfizer's continued buybacks of its stock. The company completed a $5 billion stock repurchase in June 2016. Pfizer executedanother $5 billion accelerated share repurchase agreement in February 2017.
3. More growth should be in store
Still, Pfizer's first-quarter performance wasn't exactly exciting for investors. Better days could lie ahead, though.
Pfizer reaffirmed its previous full-year 2017 guidance. The company continues to anticipate revenue between $52 billion and $54 billion, with adjusted diluted earnings per share in the range of $2.50 to $2.60.
The midpoints of those guidance ranges reflect 4% revenue growth and 10% adjusted earnings-per-share growth on an operational basis. That's not bad.
Several current products should contribute to that growth. Sales for cancer drug Ibrance soared 58% year over year in the first quarter. Sales for blood thinner Eliquis jumped 51%. Rheumatoid arthritis drug Xeljanz saw first-quarter sales increase 27% from the prior-year period. The momentum should continue for all three drugs.
Pfizer also has recently launched a couple of new products that should be big winners. Atopic dermatitis drug Eucrisa, which the company gained with its 2016 acquisition of Anacor, won U.S. regulatory approval in December. Bavencio obtained approval in March for treating Merkel cell carcinoma (MCC), a rare form of skin cancer.
Another positive takeaway from Pfizer's first quarter
While Pfizer shareholders hope the company can deliver solid growth in the future, the dividend remains a key reason why investors are attracted to the stock. Pfizer's first-quarter results provided reasons to feel pretty good about the dividends continuing to flow.
Pfizer paid out $1.9 billion in dividends during the first quarter. That amount is only 61% of the net income reported by the company in the period. Anyone who might have been concerned about Pfizer's past high dividend payout ratios should be reassured by the company's first-quarter numbers.
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