RIO Rio Tinto Plc

Novartis

Boost in Investment Takes Toll on Outlook

Novartis AG cut its full-year profit outlook as it ramps up investment in its new heart-failure treatment to offset declining sales of blockbuster cancer drug Gleevec.

Chief Executive Joe Jimenez said he had made a "hard decision" to boost investment in heart drug Entresto by an additional $200 million this year, a move that could cost the company 1% to 2% of core operating income.

"This is absolutely the right thing to do," he said. "There are two big catalysts for this company over the next two years in terms of growth. One is Entresto...and I'm not going to let any constraints minimize the peak sales potential of that brand."

Mr. Jimenez said the additional investment would mostly go into building a sales force targeting primary-care physicians, which "will need more education about Entresto."

Novartis is also counting on Cosentyx, its new drug for psoriasis and certain rheumatic diseases, to play a key role in driving growth.

The Swiss drugmaker now expects core operating income to fall by a low-single-digit percentage, after previously estimating it would be broadly in line with 2015. The company continues to see revenue broadly in line with last year.

The heart-failure drug, which launched a year ago, got off to a slow start, reflecting doctors' hesitation to switch stable patients onto a new medicine and delays in securing reimbursement from health insurers in the U.S.

But growth has picked up. More insurers have agreed to cover the drug, and cardiology associations in the U.S. and European Union updated their prescribing guidelines to recommend Entresto as the preferred drug in certain patients. Sales of Entresto were $32 million in the second quarter, and Novartis expects the drug to generate $200 million in revenue for the full year.

Novartis reported second-quarter net income of $1.81 billion, down 3% from $1.86 billion a year earlier. Core net income -- a measure that strips out one-time gains or losses -- fell 5% to $2.93 billion, and revenue dipped 2% to $12.47 billion; both topped analyst expectations.

Stripping out the negative effect of the strong U.S. dollar, the company said net income and sales were flat, and core net income was down 2%.

Novartis is dealing with shrinking sales of its best-selling cancer treatment Gleevec, which has faced competition from a cheaper generic version in the U.S. since February when it came off patent. That dragged sales at the company's innovative-medicines unit down 1% at constant currencies to $8.4 billion, despite a 23% increase in revenue from Novartis's new drugs.

Cosentyx generated $260 million in the second quarter, which Mr. Jimenez said was significantly ahead of expectations. Another bright spot was Gilenya, for multiple sclerosis, in which revenue increased 17% at constant currencies to $811 million.

The company is also investing heavily in turning around its eye-care unit Alcon. Sales at Alcon were $1.5 billion, down 1% at constant currencies, because of lower sales of contact lenses and surgical equipment.

Sales at its generic-drug business Sandoz were up 3% at constant currencies to $2.6 billion as strong volume growth more than offset lower prices.

--Denise Roland

Rio Tinto

Iron Ore Shipments Start to Recover

SYDNEY -- Rio Tinto PLC shipped more iron ore to steelmakers around the world last quarter, recovering from a weak start to the year when a tropical cyclone hindered its vast mining operations in northwest Australia.

The Anglo-Australian minerals producer on Tuesday reported iron-ore shipments of 82.2 million metric tons from its Australian mines in the three months through June, up 7% on the prior quarter immediately prior and 6% higher than the same period a year earlier.

One of the world's biggest exporters of the key steel ingredient, Rio Tinto has in recent years ratcheted up production from a vast network of mines in a remote part of Australia, betting on strong demand from expanding Asian economies such as China. The company said it expects to ship roughly 330 million tons of iron ore from those Australian mines in 2016.

Rio Tinto reiterated expectations that output will remain at similar levels next year -- between 330 million and 340 million tons -- because of delays to an autonomous railway project.

Earlier this year, the company downgraded its expectations for Australian iron ore output in 2017 from 350 million tons, citing delays to the railway system designed to increase the capacity and efficiency of its train network.

Rio Tinto also has an iron-ore operation in Canada, where its share of output increased 6% on-quarter -- although dipped 2% on-year -- to 2.6 million tons.

Prices for the commodity have steadied around US$50 a ton after tumbling from as high as US$190 a ton in early 2011, weighed by rising mine supplies. Other major global miners such as BHP Billiton Ltd. (BHP.AU) and Brazil's Vale SA (VALE) have also expanded their operations.

Rio Tinto Chief Executive Jean-Sébastien Jacques, who succeeded Sam Walsh earlier this month, said the miner remains focused on maximizing cash from its operations. "This will ensure that Rio Tinto is well-positioned to generate compelling and consistent returns for our shareholders," he said in a statement.

The miner said production of other commodities including copper and coal, two other important commodities for company earnings, were mixed.

Production of hard coking coal was down 9% on-quarter, at 1.8 million tons, while aluminum output was 3% higher at 911,000 tons.

Quarterly copper output was flat, at 141,000 tons, with higher production at some mines weighed by weaker output from the huge Escondida mine in Chile, which is managed by BHP and in which Rio Tinto holds a 30% stake.

--Rhiannon Hoyle

Philip Morris

Profit Declines, but Currency Woes Abate

Philip Morris International Inc.'s profit declined more than Wall Street anticipated as shipment volume slipped in each of its geographic divisions, including in Europe.

Shares fell 2.3% to $100.65 a share in premarket trading. The stock had risen 17% so far this year through Monday's close.

The cigarette maker said currency headwinds were abating and it raised its 2016 earnings forecast to a range of $4.45 to $4.55 a share on a reported basis, up from prior guidance of $4.40 to $4.50 a share. Excluding unfavorable currency impact, the company expects adjusted per-share earnings growing 10% to 12% from the prior year. The company still expects most growth to come in the second half of the year, particularly in the fourth quarter.

Philip Morris, which sells the leading Marlboro brand and others internationally, had seen its cigarette volumes grow amid an improving European economy.

However, in May the European Union's highest court rejected a challenge by Philip Morris and other tobacco companies against a tough new antismoking law. The 2014 tobacco directive bans menthol cigarettes, mandates bigger warning labels on cigarette packaging and, for the first time, sets limits on electronic cigarettes -- including on how much nicotine they can contain. A legal challenge against plain packaging in the U.K. also failed in May.

Shipments of Marlboro, easily its largest brand by volume, declined 3.1% while shipments of L&M, its second largest brand, edged up 0.3%.

André Calantzopoulos, Philip Morris's chief executive, said cigarette shipment volume was hurt by "declines in low-margin geographies."

For the period ended June 30, cigarette volume fell 4.8% to 209.3 billion units, as shipments declined across all its geographic segments. Shipment volume declined by 5.9% in Latin America and Canada, slid 7.9% in Asia, and fell 4% in the Eastern Europe, Middle East and Africa unit. Volume edged down 0.8% in the European Union, where the company gets about one-third of its revenue.

The company's stock has risen this year along with other tobacco giants Altria Group Inc. and Reynolds American Inc., as investors have sprung for high dividend yields. Philip Morris yields about 4%. But Philip Morris investors are paying a higher premium for a company facing tougher regulations overseas and constant currency risk compared with its domestically-focused peers.

Over all, Philip Morris reported a profit of $1.79 billion, or $1.15 a share, down from $1.89 billion, or $1.21 a share, a year earlier. Analysts had forecast $1.20, according to a Thomson Reuters poll. Revenue excluding excise taxes fell 3.1% to $6.65 billion, below the $6.77 billion in revenue analysts had forecast.

--Joshua Jamerson

(END) Dow Jones Newswires

July 20, 2016 02:50 ET (06:50 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.