WSJ: Some holes in Sanofi's earnings

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Yesterday, Sanofi-Aventis posted street-beating fourth-quarter earnings that topped last year's by 18 percent. Sales were up 6 percent. There was applause. But, as the Wall Street Journal points out today, a healthy chunk of that earnings increase came from a.) A 3.1 percentage-point tax cut, thanks to a U.S.-French treaty; and b.) A new accounting policy on amortization of goodwill from acquisitions.

So, can Sanofi manage the 2 percent to 5 percent earnings growth it's targeting for 2010? The Journal has questions about that, too. Those projections are based on no generic competition for its clot-busting drug Lovenox, which is subject of a patent dispute as we speak. The forecast also is based on assumptions that its tax rate will be lowered permanently--something that may not happen.

One way or another, Sanofi's margin is likely to trend lower because of its acquisitions in generics and emerging markets, both of which offer less of a spread on drug sales, the WSJ notes. If Sanofi continues to make similar deals, the margins could go lower still.

Of course, projections are just that--projections--and plenty of companies change their forecasts as a year wears on. Last year, thanks to pessimism about the economy, drugmakers tended to lowball earnings. This year, Sanofi may turn out to have been overly optimistic. But then again, maybe it won't.

- read the Journal piece

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