On the surface, AstraZeneca's ($AZN) third-quarter numbers look pretty strong. A big hike in earnings per share, net profits twice last year's, growing emerging markets sales, and overall revenue growth of 3.9% to $8.21 billion. But CEO David Brennan's (photo) lukewarm quote about the numbers shows the picture is a lot more complex than that.
Revenue and earnings were "in line with our expectations," Brennan said in a statement, considering "the backdrop of anticipated generic competition and government price interventions."
CFO Simon Lowth's script for the call with analysts echoed the sentiment. "[W]e continue to face revenue headwinds from government interventions on price, and from generic competition," he said, and then considered that backdrop in detail. In constant currency terms, revenue fell by 2%. Core operating profit was down 2% as well. Core EPS was up, thanks to a lower tax rate--and to the company's stock-buyback plan, which has cut the number of shares outstanding.
U.S. sales were flat and Western European revenue was down 15% thanks to generics; those results were offset by 7% gains in other international markets. The rise in emerging markets sales of 7% was slightly lower than last quarter's 10%; the fast-growing developing world hasn't been immune to global economic crisis. Worldwide, the company lost $350 million in revenue for the quarter to generic competition, particularly with Nexium and Arimidex.
Lowth said he was "pleased" to boost the core EPS target for this year by 5 cents, making the range now $7.20 to $7.40 per share. But he was quick to point out the increase is "largely due to favorable movements in actual exchange rates" compared with the rates January's guidance was based on. And that doubling in profits? Gain on the sale of AZ's AstraTech dental unit.
Analysts called the company's performance solid: "a good set of numbers," Nomura's Amit Roy told Bloomberg. But Seamus Fernandez of Leerink Swann said unless the company talks about "substantial incremental cost reductions" or delivers really strong pipeline news, "We'd be inclined to take profits today." Whether investors will take that advice remains to be seen.