Pfizer (PFE) Q3 2014 earnings summary

Executive summary

• Q3 revenue was $12.361B, down 2% YoY; adjusted diluted EPS was $0.57, down 2%, while reported net income rose 3% to $2.666B.

• Product growth and emerging-market gains partly offset exclusivity losses and lower alliance revenue; strategy emphasized R&D productivity, capital allocation, and evaluating a potential separation.

Financial highlights

• Q3 adjusted income was $3.655B, down 5%; reported diluted EPS was $0.42 versus $0.39.

• Nine-month revenue fell 4% to $36.487B; adjusted income declined 4% to $11.088B, while adjusted diluted EPS rose 4% to $1.72.

• Nine-month reported net income fell 59% to $7.907B, largely against the prior-year Zoetis disposal gain.

• Q3 adjusted R&D rose 10% to $1.788B; adjusted SI&A fell 2% to $3.299B and adjusted cost of sales rose 3% to $2.244B.

• Adjusted diluted EPS benefited from 253M fewer diluted weighted-average shares and a lower effective tax rate; FX had virtually no impact on adjusted EPS.

Outlook and guidance

• FY14 adjusted revenue guidance narrowed to $48.7B–$49.7B and adjusted diluted EPS to $2.23–$2.27; reported diluted EPS guidance was $1.50–$1.59.

• Adjusted cost of sales guidance was 18.5%–19.0% of adjusted revenue; adjusted SI&A was $13.5B–$14.0B, adjusted R&D $6.9B–$7.2B, and adjusted other income ~$400M.

• Guidance assumed U.S. multi-source generic competition for Celebrex from December 2014 and excluded potential currency devaluations, unresolved litigation, and uncompleted business-development transactions.

• LOE pressure was expected to persist through 2016, with its impact expected to ease substantially from 2017.

• Cost-reduction and commercial-structure programs were expected to generate ~$2.6B in annual savings by end-2016, with combined 2014–16 program costs of ~$3.0B.