Teva Pharmaceuticals (TEVA 25.33, -5.92, -18.9%) has seen better days and this certainly isn't one of them. Its stock is tanking after the company disappointed with its second quarter results and fiscal 2017 outlook.
For the second quarter, Teva reported revenues of $5.7 billion, up 13% from the year-ago period. That growth, however, was due primarily to the inclusion of the Actavis Generics business, which is to say it wasn't organic growth. Nevertheless, analysts accounted for the inclusion of that business in their revenue estimates and Teva came up slightly shy of their average expectations.
Its adjusted earnings of $1.02 per diluted share also fell short of analysts' average expectations, but more worrisome for investors is that they declined 18% on a comparable basis from the same period a year ago. The downturn flowed from gross margin pressure, which stemmed from Teva's addition of the low-margin Anda distribution business and lower margins in its generic medicines business.
The U.S. generics business and the continued deterioration in Venezuela were cited by Teva as key reasons why its second quarter results were lower than anticipated. They were also stated as the basis for Teva lowering its full-year outlook.
Greater competition related to an increase in generic drug approvals by the U.S. FDA, delayed product launches, and decreased volume due to customer consolidation contributed to accelerated price erosion for the U.S. generics business. The difficulties there led to a contraction in the gross profit rate for the generics medicine segment to 42.8% of sales from 44.9% in the second quarter of 2016.
The specialty medicines segment had its struggles, too. Revenues decreased 9% to $2.1 billion, led by declines for all therapeutic areas and key products, with the exception of Respiratory (+3.0%) and Other Specialty (+107%). Despite the sales challenges, the segment's gross profit increased to 89.6% of sales from 87.1% a year ago, aided by the finalization of a vendor dispute that reduced the cost of goods sold during the quarter.
Teva's management acknowledged the second quarter results as being frustrating for them and shareholders, and said the company would be taking aggressive action to confront its challenges. Such actions will include meaningful cost reductions, actively pursuing divestiture opportunities, and strengthening the balance sheet.
Be that as it may, Teva tempered its outlook for 2017 non-GAAP results.
Revenues are now expected to be between $22.8-$23.2 billion, versus prior guidance of $23.8-$24.5 billion, and non-GAAP EPS is anticipated to be between $4.30-$4.50 versus prior guidance of $4.90-$5.30.
Separately, on July 31, the company's Board of Directors declared a cash dividend of $0.085 per ordinary share for the second quarter, which is a 75% reduction from the prior quarterly dividend of $0.34.