Pfizer Reports Third-Quarter 2011 Results
- Third-Quarter 2011 Revenues of $17.2 Billion
- Third-Quarter 2011 Adjusted Diluted EPS(1) of $0.62; Reported Diluted EPS(2) of $0.48, which Reflects a $1.3 Billion After-Tax Gain on Sale of Capsugel(3)
- Increases 2011 Adjusted Diluted EPS(1) and Reported Diluted EPS(2) Guidance Ranges; Reaffirms 2012 Financial Targets
- Repurchases $2.1 Billion and $6.5 Billion of Common Stock During Third-Quarter and Year-to-Date through October 31, 2011, Respectively; Increases 2011 Share Repurchase Target to between $7 Billion and $9 Billion
NEW YORK--(BUSINESS WIRE)--Nov 1, 2011 - Pfizer Inc. (NYSE: PFE):
|($ in millions, except per share amounts)|
|Adjusted Diluted EPS(1)||0.62||0.54||15||%||1.81||1.75||3||%|
|Reported Net Income(2)||3,738||866||*||8,570||5,367||60||%|
|Reported Diluted EPS(2)||0.48||0.11||*||1.08||0.66||64||%|
|See end of text prior to tables for notes.|
|* Calculation not meaningful|
For third-quarter 2011, U.S. revenues were $6.9 billion, a decrease of 3% compared with the year-ago quarter. International revenues were $10.3 billion, an increase of 15% compared with the prior-year quarter, which reflected 4% operational growth and an 11% favorable impact of foreign exchange. U.S. revenues represented 40% of total revenues in third-quarter 2011 compared with 44% in the year-ago quarter, while international revenues represented 60% of total revenues in third-quarter 2011 compared with 56% in the year-ago quarter.
Primary Care(5) unit revenues in third-quarter 2011 were favorably impacted primarily by foreign exchange, growth from Lipitor in the U.S. and from Celebrex, Lyrica, Pristiq and Spiriva, among others, and the addition of $119 million, or 2%, from legacy King products, while negatively impacted by the loss of exclusivity of Aricept in the U.S. in November 2010 as well as the loss of exclusivity of Lipitor in Canada and Spain in May and July 2010, respectively. Taken together, these losses of exclusivity reduced Primary Care(5) unit revenues by $415 million, or 7%, in comparison with third-quarter 2010.
Specialty Care(6) unit revenues were positively impacted by foreign exchange and strong growth in the Prevenar franchise and Enbrel in most international markets. Prevnar 13 revenues in the U.S. were lower than in third-quarter 2010 as fewer patients received the Prevnar 13 catch-up dose as the timeframe for eligibility has nearly expired. Specialty Care(6) unit revenues were also negatively impacted by the loss of exclusivity of Vfend and Xalatan in the U.S. in February and March 2011, respectively. Collectively, these losses of exclusivity reduced Specialty Care(6) unit revenues by $214 million, or 6%, in comparison with third-quarter 2010.
Emerging Markets(7) unit revenues were positively impacted by foreign exchange and growth in certain key innovative brands, primarily the Prevenar franchise, Celebrex, Enbrel, Lyrica, Vfend and Zyvox, notably with double-digit operational growth in China, Russia, Turkey and India. Revenues were negatively impacted by the loss of exclusivity of Lipitor in Brazil and Mexico in August and December 2010, respectively. These losses of exclusivity reduced Emerging Markets(7) unit revenues by $30 million, or 1%, in comparison with third-quarter 2010.
Established Products(8) unit revenues were mainly impacted by the loss of exclusivity of Protonix and Zosyn in the U.S., which taken together reduced Established Products(8) unit revenues by $242 million, or 11%, in comparison with third-quarter 2010. This decline was more than offset by $144 million, or 7%, from the addition of legacy King products, as well as foreign exchange. Total revenues from established products in both the Established Products(8) and Emerging Markets(7) units were $3.2 billion, with $996 million generated in emerging markets.
Animal Health(10) unit revenues increased by 21%, in comparison with the same quarter last year, reflecting the positive operational impact of $90 million, or 10%, due to the addition of legacy King products, as well as the favorable conditions in global livestock markets and foreign exchange. The Consumer Healthcare(11) unit generated revenue growth of 15% in comparison with third-quarter 2010, primarily driven by the non-recurrence of the voluntary withdrawal of Centrum temporarily in Europe in third-quarter 2010, the U.S. launch of new dietary supplements in third-quarter 2011, as well as foreign exchange. Nutrition(12) unit revenues increased 31% in comparison with the same quarter last year, primarily in China and the Middle East, from increased demand for premium products and from new product launches, in addition to foreign exchange.
|Adjusted Expenses(1), Adjusted
Income(1) and Adjusted Diluted
|Third-Quarter Costs and Expenses|
|Adjusted Cost of Sales (1)||$||3,325||$||2,852||17||%||10||%||7||%|
|As a Percent of Revenues||19.3||%||17.8||%||N/A||N/A||N/A|
|Adjusted SI&A Expenses(1)||4,560||4,581||--||5||%||(5||%)|
|Adjusted R&D Expenses(1)||2,034||2,155||(6||%)||2||%||(8||%)|
|Adjusted Total Costs(14)||$||9,919||$||9,588||3||%||6||%||(3||%)|
Adjusted total costs(14) were $9.9 billion in third-quarter 2011, an increase of 3% compared with $9.6 billion in third-quarter 2010. Excluding the unfavorable impact of foreign exchange of $541 million, or 6%, adjusted total costs(14) decreased 3%, primarily reflecting the benefit of cost-reduction and productivity initiatives, particularly in the research and development function. Savings were also generated in third-quarter 2011 by reductions in the U.S. field force and declines in promotional spending in response to product losses of exclusivity. These savings were partially offset by the addition of costs from legacy King operations and the inclusion of the annual U.S. healthcare reform fee.
The effective tax rate on adjusted income(1) was approximately 31% in third-quarter 2011 compared with approximately 30% in third-quarter 2010. The increase was primarily due to the change in the jurisdictional mix of earnings, partially offset by the extension of the U.S. research and development credit that was signed into law in December 2010.
The diluted weighted-average shares outstanding for third-quarter 2011 was 7.8 billion shares, a reduction of approximately 247 million shares compared with third-quarter 2010, primarily due to the Company's ongoing share repurchase program.
As a result of the aforementioned factors, third-quarter 2011 adjusted income(1) was $4.8 billion, an increase of 11% compared with $4.4 billion in the year-ago quarter, and adjusted diluted EPS(1) was $0.62, an increase of 15% compared with $0.54 in the year-ago quarter.
Reported Net Income(2) and Reported Diluted EPS(2) Highlights
In addition to the aforementioned factors, third-quarter 2011 reported earnings in comparison with third-quarter 2010 reported earnings were favorably impacted by a $1.3 billion (after-tax) gain on the sale of Capsugel(3) in third-quarter 2011, as well as the non-recurrence of impairment charges of $1.5 billion (pre-tax) related to certain intangible assets acquired in connection with the Wyeth acquisition and a $701 million (pre-tax) charge for asbestos litigation related to our wholly owned subsidiary, Quigley Company, Inc., both in third-quarter 2010. Third-quarter 2011 reported earnings were negatively impacted compared with the same period last year by higher charges associated with cost-reduction and productivity initiatives.
The effective tax rate on reported results was approximately 34% in third-quarter 2011 compared with approximately 39% in third-quarter 2010. The decrease in the effective tax rate was primarily due to the previously mentioned extension of the U.S. research and development credit and the change in the jurisdictional mix of earnings, as well as the decrease and jurisdictional mix of the aforementioned impairment charges.
As a result of all these factors, third-quarter 2011 reported net income(2) was $3.7 billion, compared with $866 million in the prior-year quarter, and reported diluted EPS(2) was $0.48, compared with $0.11 in the prior-year quarter.
Ian Read, President and Chief Executive Officer, stated, “Overall, I am very pleased with our financial performance despite the impact of product losses of exclusivity totaling approximately $950 million this quarter and the challenges posed by current global market and economic conditions. Excluding the impact of product losses of exclusivity, all of our businesses generated revenue growth while effectively managing their cost structures. Notably, in our Emerging Markets business, I am pleased that both our innovative and established product portfolios continued to perform well, largely as a result of our targeted investments despite a volatile environment. Further, in Japan, our second largest market, we generated 19% operational growth enterprise-wide. I am also happy with the strong performance of the Lipitor franchise and our ability to continue to maximize the value of this brand prior to its loss of exclusivity in the U.S. We remain well prepared for the Lipitor U.S. loss of exclusivity later this month and in various other countries shortly thereafter.”
“I am excited by the potential opportunity for Xalkori, recently launched in U.S. specialty pharmacies for the treatment of ALK-positive advanced non-small cell lung cancer, and Prevnar 13/Prevenar 13, recently approved in the European Union for the prevention of invasive pneumococcal disease in adults aged 50 years and older. Additionally, we have several compounds in our late-stage pipeline, notably Eliquis for stroke prevention in patients with atrial fibrillation, tofacitinib in rheumatoid arthritis and axitinib in advanced renal cell carcinoma, among others. Each of these opportunities represents a potential valuable, new treatment option for patients in need,” Mr. Read continued.
Frank D'Amelio, Chief Financial Officer, stated, “Given our solid performance so far this year, our continued confidence in the business within the current environment and our financial flexibility, we are narrowing the range of many of our 2011 financial guidance components and reaffirming our 2012 financial targets. Notably, we are increasing our 2011 adjusted diluted EPS(1) guidance range, resulting in an updated range of $2.24 to $2.29. Additionally, we returned approximately $3.6 billion to our shareholders during the quarter through $1.5 billion in dividends and $2.1 billion from the repurchase of 112.9 billion shares. So far in 2011, we have repurchased $6.5 billion, or 331.6 million of our shares, and we now anticipate repurchasing between $7 billion and $9 billion of our common stock this year. In total, we have returned approximately $11.2 billion to our shareholders this year through dividends and share repurchases.”
2011 Financial Guidance(15)
For full-year 2011, Pfizer's financial guidance, at current exchange rates(16), is summarized below.
|Reported Revenues||$66.2 to
$67.2 billion (previously $65.2 to $67.2 billion)
|Adjusted Cost of Sales(1) as a Percentage of Revenues||19.8% to
20.3% (previously 19.5% to 20.5%)
|Adjusted SI&A Expenses(1)||$19.4 to
$19.9 billion (previously $19.2 to $20.2 billion)
$8.4 billion (previously $8.0 to $8.5 billion)
|Adjusted Other (Income)/Deductions(1)||
Approximately $800 million (previously approximately $1.0
|Effective Tax Rate on Adjusted Income(1)||Approximately 29%|
|Reported Diluted EPS(2)||$1.20 to
$1.30 (previously $1.09 to $1.24)
|Adjusted Diluted EPS(1)||$2.24 to
$2.29 (previously $2.16 to $2.26)
For full-year 2012, Pfizer's financial targets, at current exchange rates(16), are summarized below.
|Reported Revenues||$62.2 to $64.7 billion|
|Adjusted SI&A Expenses(1)||$17.5 to $18.5 billion|
|Adjusted R&D Expenses(1)||$6.5 to $7.0 billion|
|Adjusted Other (Income)/Deductions(1)||Approximately $1.0 billion|
|Adjusted Operating Margin(1)||High 30%s to low 40%s|
|Effective Tax Rate on Adjusted Income(1)||Approximately 29%|
|Reported Diluted EPS(2)||$1.58 to $1.73|
|Adjusted Diluted EPS(1)||$2.25 to $2.35|
|Operating Cash Flow||At least $19.0 billion|
(1) "Adjusted Income" and its components and "Adjusted Diluted Earnings Per Share (EPS)" are defined as reported net income(2) and its components and reported diluted EPS(2) excluding purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items. Adjusted Cost of Sales, Adjusted Selling, Informational and Administrative (SI&A) expenses, Adjusted Research and Development (R&D) expenses and Adjusted Other (Income)/Deductions are income statement line items prepared on the same basis, and, therefore, components of the overall adjusted income measure. As described under Adjusted Income in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of Pfizer's Form 10-Q for the fiscal quarter ended July 3, 2011, management uses adjusted income, among other factors, to set performance goals and to measure the performance of the overall company. We believe that investors' understanding of our performance is enhanced by disclosing this measure. Reconciliations of third-quarter 2011 and 2010 and the first nine months of 2011 and 2010 adjusted income and its components and adjusted diluted EPS to reported net income(2) and its components and reported diluted EPS(2), as well as reconciliations of full-year 2011 guidance and 2012 targets for adjusted income and adjusted diluted EPS to full-year 2011 guidance and 2012 targets for reported net income(2) and reported diluted EPS(2), are provided in the materials accompanying this report. The adjusted income and its components and adjusted diluted EPS measures are not, and should not be viewed as, substitutes for U.S. generally accepted accounting principles (GAAP) net income and its components and diluted EPS.
(2) “Reported Net Income” is defined as net income attributable to Pfizer Inc. in accordance with U.S. GAAP. “Reported Diluted EPS” is defined as reported diluted EPS attributable to Pfizer Inc. common shareholders in accordance with U.S. GAAP.
(3) Capsugel provided capsule products and related services to the pharmaceutical and associated healthcare industries. On August 1, 2011, Pfizer completed the sale of Capsugel to an affiliate of Kohlberg Kravis Roberts & Co. L.P.
(4) In all periods presented, the results from the Capsugel(3) business are reflected in a single line, Discontinued operations - net of tax until the completion of the sale on August 1, 2011. Additionally, due to the acquisition of King Pharmaceuticals, Inc. (King), legacy King operations are reflected in the 2011 results beginning January 31, 2011. Therefore, in accordance with Pfizer's domestic and international reporting periods, the results for the first nine months of 2011 reflect approximately eight months of King's U.S. operations and approximately seven months of King's international operations. Legacy King operations are not reflected in the results for the first nine months of 2010.
(5) The Primary Care unit includes revenues from human pharmaceutical products primarily prescribed by primary-care physicians, and may include, but are not limited to, products in the following therapeutic and disease areas: Alzheimer's disease, cardiovascular (excluding pulmonary arterial hypertension), diabetes, erectile dysfunction, genitourinary, major depressive disorder, pain, respiratory and smoking cessation. Examples of products in this unit include, but are not limited to, Celebrex, Chantix, Lipitor, Lyrica, Premarin, Pristiq and Viagra. All revenues for such products are allocated to the Primary Care unit, except those generated in emerging markets(7) and those that are managed by the Established Products(8) unit.
(6) The Specialty Care unit includes revenues from human pharmaceutical products primarily prescribed by physicians who are specialists, and may include, but are not limited to, products in the following therapeutic and disease areas: anti-infectives, endocrine disorders, hemophilia, inflammation, multiple sclerosis, ophthalmology, pulmonary arterial hypertension, specialty neuroscience and vaccines. Examples of products in this unit include, but are not limited to, BeneFIX, Enbrel, Genotropin, Geodon, the Prevnar/Prevenar franchise, Rebif, ReFacto, Revatio, Xalatan, Xyntha and Zyvox. All revenues for such products are allocated to the Specialty Care unit, except those generated in emerging markets(7) and those that are managed by the Established Products(8) unit.
(7) The Emerging Markets unit includes revenues from all human prescription pharmaceutical products sold in emerging markets, including, but not limited to, Asia (excluding Japan and South Korea), Latin America, Middle East, Africa, Central and Eastern Europe and Turkey.
(8) The Established Products unit generally includes revenues from human prescription pharmaceutical products that have lost patent protection or marketing exclusivity in certain countries and/or regions. Typically, products are transferred to this unit in the beginning of the fiscal year following losing patent protection or marketing exclusivity. In certain situations, products may be transferred to this unit at a different point than the beginning of the fiscal year following losing patent protection or marketing exclusivity in order to maximize their value. This unit also excludes revenues generated in emerging markets(7). Examples of products in this unit include, but are not limited to, Arthrotec, Effexor, Medrol, Norvasc, Protonix, Relpax and Zosyn/Tazocin.
(9) The Oncology unit includes revenues from human oncology and oncology-related products. Examples of products in this unit include, but are not limited to, Aromasin, Sutent, Torisel and Xalkori. All revenues for such products are allocated to the Oncology unit, except those generated in emerging markets(7) and those that are managed by the Established Products(8) unit.
(10) Animal Health includes worldwide revenues from products to prevent and treat disease in livestock and companion animals, including, but not limited to, vaccines, parasiticides and anti-infectives. On July 7, 2011, the Company announced that it is exploring strategic alternatives for Animal Health, which may include, among others, a full or partial separation from Pfizer through a spin-off, sale or other transaction.
(11) Consumer Healthcare generally includes worldwide revenues from non-prescription medicines and vitamins and may include, but are not limited to, products in the following therapeutic categories: GI-topicals, nutritionals, pain management and respiratory. Examples of products in Consumer Healthcare include, but are not limited to, Advil, Caltrate, Centrum, ChapStick and Robitussin.
(12) Nutrition generally includes revenues from a full line of infant and toddler nutritional products sold outside the U.S. and Canada. Examples of products in Nutrition include, but are not limited to, the S-26 and SMA product lines as well as formula for infants with special nutritional needs. On July 7, 2011, the Company announced that it is exploring strategic alternatives for Nutrition, which may include, among others, a full or partial separation from Pfizer through a spin-off, sale or other transaction.
(13) Includes revenues generated primarily from Pfizer Centersource.
(14) Represents the total of Adjusted Cost of Sales(1), Adjusted SI&A expenses(1) and Adjusted R&D expenses(1).
(15) Does not assume the completion of any business-development transactions not completed as of October 2, 2011, including any one-time upfront payments associated with such transactions. Also excludes the potential effects of the resolution of litigation-related matters not substantially resolved as of October 2, 2011. The 2011 financial guidance includes revenues and expenses related to the Capsugel(3) business as a discontinued operation through July 31, 2011. The gain on the sale of Capsugel(3) is reflected in 2011 Reported Diluted EPS(2) guidance, but is not reflected in 2011 Adjusted Diluted EPS(1) guidance.
(16) The current exchange rates assumed in connection with the 2011 financial guidance are a blend of the actual exchange rates in effect during the first nine months of 2011 and the mid-October 2011 exchange rates for the remainder of the year. The current exchange rates assumed in connection with the 2012 financial targets are the mid-October 2011 exchange rates.
|PFIZER INC. AND SUBSIDIARY COMPANIES|
|CONSOLIDATED STATEMENTS OF INCOME|
|(millions, except per common share data)|
|Third Quarter||% Incr. /||Nine Months||% Incr. /|
|Costs and expenses:|
Posted: November 2011