Charge Hits Watson's Profits

Adjusted earnings fall short of estimates.
Author:
Publish date:

Generic-drug maker

Watson Pharmaceuticals

(WPI)

issued fourth-quarter results that fell below the same period in 2004, in part because of charges for closing a manufacturing plant in Puerto Rico.

The Corona, Calif., company said Thursday that it earned $20.1 million, or 19 cents a share, on revenue of $418.8 million for the three months ended Dec. 31. For the same period a year earlier, Watson earned $54.6 million, or 46 cents a share, on revenue of $423.5 million.

Watson said the latest quarterly results reflected a charge of 14 cents a share for the Puerto Rico plant, whose closing was announced during the fourth quarter. The closing will take about a year. Products made in Puerto Rico will be made at two other plants.

However, even if the 14-cent charge is added back to the fourth-quarter EPS, the performance still fell below the Thomson First Call estimate of 35 cents a share, excluding one-time items.

Watson predicts 2006 earnings per share will be in the range of $1.31 to $1.41, which includes 5 cents to 6 cents for expensing stock options and 4 cents to 5 cents related to the Puerto Rico plant. Analysts are looking for a profit of $1.49 in 2006, a figure that would be within the Watson forecast range if the stock-option and plant-closing charges are excluded.

The company predicted 2006's sales would be in the range of $1.78 billion to $1.89 billion, ahead of the Wall Street estimate of $1.76 billion.

"We have taken significant steps to expand our product development and manufacturing capabilities in Asia," said Allen Chao, Watson's chairman and chief executive, in a prepared statement. "Taking these steps now will position us to maintain a competitive cost base while continuing to provide a broad portfolio of quality products to our customers."

Watson plans to establish a generic-product development center in India this year, and the company recently signed an agreement to purchase an Indian drug company. Watson didn't identify the company or the terms of the deal. Watson acquired another Indian company late last year.

For the full year, Watson's generic-drug sales of $1.24 billion were essentially the same as for 2004. Brand-name drug sales rose 7% to $389.5 million. Also for the year, Watson reported a profit of $138.2 million, or $1.21 a share, compared with a 2004 profit of $150 million, or $1.26 a share.

The company issued its financial results after the markets had closed. In regular trading, the stock closed at $32.50, down 9 cents.