Earnings Scorecard: Forest Labs - Analyst Blog
October 26 2012 - 1:26PM
Zacks
Following the release of second quarter fiscal 2013 results,
most of the analysts providing earnings estimates for
Forest Laboratories (FRX) have made downward
revisions to their estimates for fiscal 2013. The downward revision
in estimates is mainly in response to the company’s lowered
guidance for fiscal 2013.
Second Quarter Fiscal 2013 Quarter
Highlights
Forest Labs reported earnings per share of 8 cents in the second
quarter of fiscal 2013, well below the year-earlier earnings of 91
cents per share. Results were hit by the loss of exclusivity on
Lexapro.
Excluding acquisition-related amortization costs, second quarter
fiscal 2013 earnings came in at 15 cents, down from 95 cents in the
year-ago quarter. The Zacks Consensus Estimate was hinting towards
breakeven earnings.
Second quarter revenues declined 34.9% to $760.6 million, with
net sales falling 38.8% to $692.0 million. Total revenues missed
the Zacks Consensus Estimate of $779 million.
A detailed discussion of second quarter fiscal 2013 results is
available here: Earnings Decline at Forest Labs
Agreement of Estimate Revisions
There is a significant negative bias in earnings estimate
revisions for Forest Labs for fiscal 2013. Following the release of
second quarter fiscal 2013 results, all 12 analysts providing
estimates for the stock lowered their estimates for fiscal
2013.
A similar trend is seen for fiscal 2014 as well with 19 of the
22 analysts providing estimates cutting their estimates with no
movement in the opposite direction.
Forest Labs expects to earn 45 - 60 cents per share (excluding
acquisition-related amortization), down from the earlier guidance
of 95 cents - $1.10 per share.
With the entry of generic competition, Lexapro sales will
continue declining. In addition to lower Lexapro sales, other
factors expected to affect sales are lower than expected royalty
income and the discontinuation of shipping of Levothroid.
However, more than the Lexapro impact, we were disappointed to
see Forest Labs cut its revenue expectations for Namenda. The
company now expects Namenda sales to grow 11% in fiscal 2013
instead of 17%. This means that Namenda s sales will be affected by
about $85 million.
Forest Labs said that although sales in the retail segment were
in line with expectations, long term care sales were below
expectations. Long term care sales account for 35-40% of the
company’s Namenda sales.
Meanwhile, Linzess, which gained FDA approval in August for the
treatment (once-daily) of adults suffering from irritable bowel
syndrome with constipation (IBS-C) or chronic idiopathic
constipation (CIC), is expected to deliver sales of $25 million
instead of $60 million.
The reduced forecast reflects a delay in the product launch due
to the three-month extension of the FDA review period. Linzess is
partnered with Ironwood Pharmaceuticals
(IRWD).
Magnitude of Revisions
Estimates for fiscal 2013 have gone down by 43 cents following
the release of second quarter fiscal 2013 results. The current
Zacks Consensus Estimate is 25 cents. Fiscal 2014 estimates have
been slashed by 28 cents to $1.27 per share. The reduction in
fiscal 2014 estimates mainly reflects reduced expectations from
Namenda.
Our Recommendation
We currently have a Neutral recommendation on Forest Labs, which
carries a Zacks #3 Rank (short-term Hold rating). Forest Labs is
facing tough times with Lexapro losing patent protection.
More than Lexapro’s genericization, the cut in Namenda’s
guidance is disappointing as Namenda is currently the main
contributor to the Forest Labs’ top line. Moreover, the performance
of new products especially Teflaro, has been below expectations.
However, we remain encouraged by Forest Labs’ progress with its
pipeline candidates.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that
earnings estimate revisions are the most powerful force impacting
stock prices. He turned this ground breaking discovery into two of
the most celebrating stock rating systems in use today. The Zacks
Rank for stock trading in a 1 to 3 month time horizon and the Zacks
Recommendation for long-term investing (6+ months). These “Earnings
Estimate Scorecard” articles help analyze the important aspects of
estimate revisions for each stock after their quarterly earnings
announcements. Learn more about earnings estimates and our proven
stock ratings at http://www.zacks.com/education/
FOREST LABS A (FRX): Free Stock Analysis Report
IRONWOOD PHARMA (IRWD): Free Stock Analysis Report
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