Updated from 1:25 p.m. EDT
second-quarter financial results beat Wall Street's estimates, and the company provided no financial shocks, but executives also indicated that job cuts would be coming soon as part of a previously announced restructuring.
Henry McKinnell, the chairman and CEO, told analysts during a telephone conference that Pfizer was able to show a gain in revenue despite generic competition for several drugs, the withdrawing of the arthritis drug Bextra and the "rebuilding" of sales for the arthritis drug Celebrex.
He reiterated that he expects Pfizer to post double-digit earnings-per-share growth in 2006 and even greater double-digit profit growth in 2007.
"I love it when a plan comes together," said McKinnell, citing the signature comment from Col. Hannibal Smith in the
1980s television show
The pharmaceutical giant earned $3.46 billion, or 47 cents a share, in the quarter, compared with $2.86 billion, or 38 cents a share, last year. The difference was primarily attributable to taxes, where the company reported a $413 million benefit in the 2005 quarter compared with a $582 million expense last year.
Adjusted for a host of items, earnings were $3.42 billion, or 46 cents a share, in the latest quarter, beating the consensus estimate by 2 cents, according to Thomson First Call.
Sales rose 1% from a year ago to $12.43 billion, compared with estimates of $12.15 billion. Pfizer's cost of sales rose 19% from a year ago to $2.08 billion.
"Overall this quarter was in good shape with no major surprises," Tim Anderson of Prudential Equity Group wrote in a research note.
Pfizer's shares were up modestly for much of the day, but by late afternoon the stock had lost 24 cents to $27.14 on greater than average trading.
The company did alter its forecast, revising its full-year revenue prediction to "a modest decline" vs. 2004 rather than the previous estimate that revenue would be unchanged.
Alan Levin, Pfizer's chief financial officer, said in a prepared statement that the company was revising its revenue estimate but keeping its adjusted full-year EPS estimate at $1.98 because the U.S. dollar has begun strengthening against the euro, the pound and the yen.
"Pfizer has performed well and will continue to perform well in spite of the recent adverse impact of foreign exchange," Levin said. "Cost of sales as a percentage of revenues will continue to remain under pressure throughout the year."
Analysts also took note of Pfizer offering a few details to its cost-cutting plans that were announced in April. At the time, Pfizer said it wanted to produce $4 billion in cost savings annually by 2008. Pfizer said it expects to save $400 million this year, $2 billion next year, $3.5 billion in 2007 and $4 billion in 2008. It said the cost of implementing the restructuring could be as much as $5 billion over four years.
The savings will come from procurement ($1.3 billion), operating expenses ($1.3 billion) and facilities ($300 million), leaving $1.1 billion to come from other as yet unidentified sources. The company has already announced plans to shed six plants and several smaller facilities. Pfizer wants to cut by 25% the number of worldwide plants, and the reduction will continue for three more years.
Pfizer executives indicated that efforts to reorganize and restructure will cost some jobs, but they declined to provide specific numbers. McKinnell said Pfizer will tell employees before it tells Wall Street.
The company reiterated that it was looking to improve productivity by "redesigning" the U.S. sales force "to respond to changing market dynamics." In April, Pfizer predicted "some modest reduction" in total employment. Pfizer has 115,000 employees worldwide, and has said any cuts in its 38,000-member sales staff would be achieved through attrition.
On Wednesday, Pfizer said it will reorganize its research and development activities to "reduce costs, speed decision-making and concentrate resources" on projects with the best chances of success.
The changes in R&D, sales force deployment, plant operations and information technology consolidation "will help Pfizer operate more efficiently and effectively," said Karen Katen, a vice chairman. "Unfortunately, some of these organizational changes will result in job reductions ... . We will do everything we can to help affected colleagues during the transition."
Human health care revenue fell 1% to $10.64 billion, while consumer health care revenue rose 12% to $969 million and animal health care fell 19% to $578 million, Pfizer said.
The company's second quarter was driven by 21% year-over-year revenue growth of cholesterol treatment Lipitor to $2.86 billion and a 12% jump in hypertension drug Norvasc to $1.16 billion. Both drugs performed better in the U.S., and Norvasc has lost patent protection in much of Europe.
Revenue for depression treatment Zoloft rose 1% to $796 million, while Viagra revenue rose 1% to $391 million. Viagra's U.S. sales dropped 13%, but foreign sales were up 16%.
Sales of Celebrex dropped 45% to $401 million, but Pfizer saw some good news. Among new prescriptions for arthritis drugs in the U.S., Celebrex's market share has gone from 7.4% in mid-February to 10.6% in early July.
The gains have been aided in part by switches from fellow COX-2 inhibitor drug Bextra, which
Pfizer pulled from the market in April following a request by the Food and Drug Administration. The FDA says Bextra's risks outweigh its benefits. Pfizer disputes the agency's opinion and has been meeting with FDA officials and foreign regulators to determine under what circumstances Bextra might return to the market.
Pfizer is still negotiating with the FDA on changing the wording on the Celebrex label to reflect the agency's concerns about the possible cardiovascular risks of COX-2 inhibitors and other pain relievers. Katen said she expects the new label to be approved "very soon." When that happens, Pfizer's sales force will begin promoting the product again.
Generic competition caused major hits to several drugs, including the epilepsy medication Neurontin, whose sales fell 79% to $161 million and the antifungal Diflucan, whose sales sank 55% to $129 million.