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How key suppliers performed in 2014.

NEW YORK -- An almost 10fold surge in earnings at Merck & Co. carried the day for major manufacturers of core drug store merchandise in the fourth quarter of 2014, as combined earnings at 25 companies tracked by Chain Drug Review rose 4.5% in the face of a 1.2% sales decline.

Aggregate income from continuing operations for the group improved to $22.43 billion from $21.46 billion in the 2013 fourth quarter even as total revenues slipped to $146.61 billion from $148.44 billion. Consequently, net margin for the 25 companies widened to 15.3% from 14.5% in the preceding year.

A totally different picture emerges, however, when Merck's results are factored out, with earnings for the remaining 24 companies tumbling 26.9% to $15.11 billion from $20.68 billion in the 2013 quarter. Merck's bottom line for the three months vaulted $6.54 billion over prior-year levels to $7.32 billion, as a gain on the sale of Merck Consumer Care and other special items bolstered results by a net of $4.81 billion in the 2014 period. Conversely, earnings in the 2013 quarter were negatively impacted by a net of $1.82 billion from special items.

Even after also factoring out the partially offsetting results of the company with the second largest year-over-year change (GlaxoSmithKline PLC, down $2.76 billion due to unfavorable shifts in special items), earnings for the remaining 23 companies were still down 19.9% to $13.51 billion from $16.86 billion.

Of course, Merck and GlaxoSmithKline were not the only companies to have their results skewed by special items. Charges or benefits associated with restructuring, acquisitions, asset impairment, legal settlements, debt retirement, asset sales, purchase accounting adjustments, tax credits and other items positively or negatively impacted earnings from ongoing lines at 24 of the 25 companies (see chart footnotes).

Twenty-two of the 25 manufacturers were profitable in the quarter. However, just 12 posted positive year-over-year comparisons. Among the gainers, one had a single-digit increase, two rose in the 10% to 19.9% range, one advanced in the 20% to 29.9% range, seven vaulted more than 30%, and one (Revlon Inc.) rebounded from a prior-year loss.

Of the 13 companies with earnings declines or posting red ink, two had single-digit decreases, one fell in the 10% to 19.9% range, two dropped in the 20% to 29.9% range, five slid more than 30%, one (Actavis PLC) saw its loss widen, one (Kimberly-Clark Corp.) swung to red ink from a prior-year profit, and one (AstraZeneca PLC) narrowed its loss.

Unfavorable currency translations, patent expirations and other factors took a toll on the group's top line, with only 12 of the companies recording revenue improvements. Among those, six were up in the single digits, four gained in the 10% to 19.9% range, and two escalated more than 30%. Among the 13 companies with revenue declines, 11 fell in the single digits and two dropped in the 10% to 19.9% range.

As for the 22 companies also ending their years on or around December 31, combined earnings from continuing operations rose 5.8% to $82.83 billion from $78.42 billion in 2013. With revenues edging up 0.6% to $534.90 billion from $531.70 billion, net margin for the group improved to 15.5% from 14.7% a year ago.

Excluding Merck and GlaxoSmithKline --which again had the largest positive and negative year-over-year changes--earnings for the remaining 20 companies rose 1.8% to $66.73 billion from $65.57 billion. But with just Merck excluded, full-year earnings for the 21 companies fell 4.1% to $71.01 billion from $74.01 billion.

Breaking down the group's full-year earnings, 21 of the 22 companies operated in the black. Twelve of those manufacturers had positive year-over-year comparisons, with three chalking up single-digit increases, two ahead in the 10% to 19.9% range, one gaining in the 20% to 29.9% range, five jumping better than 30%, and one (Valeant Pharmaceuticals International Inc.) rebounding from a 2013 loss.

Among the 10 companies with downturns, one slipped in the single digits, two were off in the 10% to 19.9% range, three fell in the 20% to 29.9% range, three tumbled more than 30%, and one (Actavis) saw its loss widen behind major special items. As during the quarter, special items weighed in on comparisons at all but one of the companies.

Looking at the top-line performance, 14 of the companies rang up gains, with eight ahead in the single digits, two up in the 10% to 19.9% range, one advancing in the 20% to 29.9% range, and three jumping more than 30%. Of the eight decliners, six had single-digit decreases and two slid in the 10% to 19.9% range.
Supplier Sales and Earnings: 2014 Fourth Quarter

                                                     Net income/
                              Sales                   (loss) *
                            (add 000)     % change    (add 000)

Abbott (1)                 $ 5,356,000    +  5.6%     $ 634,000
Actavis (2)                  4,056,900    + 46.0%     (732,900)
Allergan (3)                 1,910,500    + 13.4%       542,600
Amgen (4)                    5,331,000    +  6.4%     1,294,000
AstraZeneca (5)              6,683,000    -  2.4%     (321,000)
Becton Dickinson (6)         2,051,000    +  1.8%       236,000
Biogen (7)                   2,640,675    + 34.3%       883,464
Bristol-Myers Squibb (8)     4,258,000    -  4.1%        13,000
Church S Dwight                865,500    +  5.2%       106,600
Colgate-Palmolive (9)        4,221,000    -  3.2%       628,000
Energizer Holdings (10)      1,038,400    -  6.8%       105,100
GlaxoSmithKline (11)         9,608,100    - 10.4%     1,604,460
Helen of Troy (12)             435,674    + 14.4%        55,377
Johnson & Johnson (13)      18,254,000    -  0.6%     2,521,000
Kimberly-Clark (14)          4,828,000    -  1.4%      (68,000)
Lilly (Eli) (15)             5,121,300    - 11.8%       428,500
Merck (16)                  10,482,000    -  7.4%     7,316,000
Mylan (17)                   2,082,700    + 15.2%       189,200
Newell Rubbermaid (18)       1,526,000    +  4.1%        49,300
Novartis (19)               14,633,000    -  2.0%     1,487,000
Pfizer (20)                 13,118,000    -  3.2%     1,257,000
Procter & Gamble (21)       20,161,000    -  4.4%     2,975,000
Revlon (22)                    501,000    +  2.0%         2,300
Teva (23)                    5,168,000    -  4.8%       687,000
Valeant (24)                 2,280,000    + 10.5%       534,900
GROUP TOTALS              $146,610,749    -  1.2%   $22,427,901

                              %        Net
                            change    margin

Abbott (1)                 +  31.3%   11.8%
Actavis (2)                  N/A      N/A
Allergan (3)               +  73.6%   28.4%
Amgen (4)                  +  26.7%   24.3%
AstraZeneca (5)              N/A      N/A
Becton Dickinson (6)       -  12.9%   11.5%
Biogen (7)                 +  93.2%   33.5%
Bristol-Myers Squibb (8)   -  98.2%    0.3%
Church S Dwight            +  15.6%   12.3%
Colgate-Palmolive (9)      +  11.3%   14.9%
Energizer Holdings (10)    -   2.6%   10.1%
GlaxoSmithKline (11)       -  58.0%   16.7%
Helen of Troy (12)         +  47.6%   12.7%
Johnson & Johnson (13)     -  28.4%   13.8%
Kimberly-Clark (14)          N/A      N/A
Lilly (Eli) (15)           -  41.1%    8.4%
Merck (16)                 + 836.7%   69.8%
Mylan (17)                 +   5.0%    9.1%
Newell Rubbermaid (18)     -  57.6%    3.2%
Novartis (19)              -  25.8%   10.2%
Pfizer (20)                -  52.2%    9.6%
Procter & Gamble (21)      -   9.8%   14.8%
Revlon (22)                  N/A       0.5%
Teva (23)                  +  80.8%   13.3%
Valeant (24)               + 332.1%   23.5%
GROUP TOTALS               +   4.5%   15.3%

NOTE: All results and comparisons are based on continuing
operations. Where applicable, earnings stated are
attributable to shareholders, excluding minority interests.

(1.) Abbott's results are from continuing operations, with
     earnings reduced by special Items totaling a net of $309
     million In the 2014 quarter and $271 million a year ago.
     Including $271 million in income from discontinued
     operations, net income was $905 million In the most recent
     quarter, compared with $589 million a year ago, which
     included $106 million in income from discontinued
     operations.

(2.) Actavis' results reflect the acquisition of Forest
     Laboratories on July 1,2014.The loss for the most recent
     quarter reflects $1.78 billion in special items. The company
     had a $148.4 million net loss in the prior-year period,
     reflecting $703.1 million in special items.

(3.) Allergan's results are from continuing operations, with
     earnings reduced by special items totaling a net of $126.8
     million in the 2014 quarter and $92.6 million a year ago.
     Including a $3.5 million loss from discontinued operations,
     net income was $539.1 million In the most recent quarter,
     compared with $312.3 million a year ago, which included a
     $300,000 loss from discontinued operations.

(4.) Amgen's earnings were reduced by special items totaling a
     net of $376 million in the most recent quarter and $370
     million a year ago.

(5.) AstraZeneca's earnings were reduced by special items
     totaling a net of $1.27 billion in the most recent quarter
     and $2.06 billion a year ago.

(6.) Becton Dickinson's earnings were reduced by special items
     totaling a net of approximately $65 million in the most
     recent quarter and $11.9 million a year ago.

(7.) Biogen's earnings were reduced by special items totaling
     a net of $82.1 million in the most recent quarter and $99.7
     million a year ago.

(8.) Bristol-Myers Squibb's earnings were reduced by special
     items totaling a net of $758 million in the most recent
     quarter and $116 million a year ago.

(9.) Colgate-Palmolive's earnings were reduced by special
     items totaling a net of $71 million in the most recent
     quarter and $133 million a year ago.

(10.) Energizer's earnings were reduced by special items
      totaling a net of $24.2 million in the most recent quarter
      and $24.7 million a year ago.

(11.) GlaxoSmithKline's results for both years are translated
      from the British sterling to the U.S. dollar at rates as of
      December 31,2014. Earnings for the 2014 quarter were reduced
      by a net of $438 million from special items. Earnings in the
      prior-year quarter were increased by a net of $1.66 billion
      from special items.

(12.) Helen of Troy's results reflect the June 2013
      acquisition of Healthy Directions LLC. Earnings were reduced
      by special items totaling a net of $718 million in the most
      recent quarter and $713 million a year ago.

(13.) Johnson & Johnson's earnings were reduced by special
      Items totaling a net of $1.09 billion in the most recent
      quarter and $42 million a year ago.

(14.) Kimberly-Clark's results are from continuing operations,
      with the loss for the most recent quarter reflecting a net
      of $573 million in special Items, primarily a $462 million
      charge for Venezuelan balance sheet remeasurement. The
      company had earnings from continuing operations of $486
      million In the prior-year period, reflecting $14 million in
      after-tax charges. Including a $15 million loss from
      discontinued operations, the net loss was $83 million in the
      most recent quarter, compared with net Income of $539
      million a year ago, which included $53 million in income
      from discontinued operations.

(15.) Eli Lilly's earnings were reduced by special Items
      totaling a net of $369.1 million In the most recent quarter
      and $69.3 million a year ago.

(16.) Merck's earnings for the most recent quarter were
      increased by a net of $4.81 billion from special items.
      Earnings in the prior-year period were decreased by a net of
      $1.82 billion from special items.

(17.) Mylan's earnings were reduced by special items totaling a
      net of $230.6 million in the most recent quarter and $127.9
      million a year ago.

(18.) Newell Rubbermaid's earnings are from continuing opera-
      tions, with results reduced by special items totaling a net
      of $86 million in the most recent quarter and $15.2 million
      a year ago. Including $2.7 million in income from
      discontinued operations, net income was $52 million in the
      most recent quarter, compared with $1173 million a year ago,
      which included $1 million in income from discontinued
      operations.

(19.) Novartis' earnings were reduced by special items
      totaling a net of $1.43 billion in the most recent quarter
      and $893 million a year ago.

(20.) Pfizer's results are from continuing operations, with
      earnings reduced by special items totaling a net of $2.19
      billion in the most recent quarter and $1.06 billion a year
      ago. Including a $21 million loss from discontinued operations,
      net income was $1.24 billion In the most recent quarter,
      compared with $2.57 billion a year earlier, which Included
      $57 million in losses from discontinued operations.

(21.) Procter & Gamble's results are from continuing operations,
      with the Duracell battery business classified as a
      discontinued operation in advance of its forthcoming sale.
      Earnings reflected pretax items totaling $134 million in the
      most recent quarter and $92 million a year ago. Including a
      $577 million loss from discontinued operations, net Income
      was $2.40 billion in the most recent quarter, compared with
      $3.47 billion a year ago, which Included $175 million in
      income from discontinued operations.

(22.) Revlon's results are from continuing operations, with
      earnings from the most recent quarter reduced by special
      items totaling a net of $4.8 million, pretax. The company
      had a $9 million loss from continuing operations in the
      prior-year period, reflecting $34.6 million in pretax Items.
      Including $400,000 in Income from discontinued operations,
      net income was $2.7 million in the most recent quarter,
      compared with a net loss of $33.1 million a year ago, which
      included $24.1 million in losses from discontinued
      operations.

(23.) Teva's earnings were reduced by special items totaling a
      net of $438 million in the most recent quarter and $825
      million a year ago.

(24.) Valeant's earnings were reduced by special Items
      totaling a net of $345.8 million in the most recent quarter
      and $6077 million a year ago.
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Title Annotation:Business
Publication:Chain Drug Review
Date:Apr 27, 2015
Words:2305
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