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An Investor's View of Valeant Pharmaceuticals for 2017

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Part 6
An Investor's View of Valeant Pharmaceuticals for 2017 PART 6 OF 6

Why Did Valeant Pharmaceuticals Update Its 2016 EPS Guidance?

2016 EPS guidance

Valeant Pharmaceuticals (VRX) revised its fiscal 2016 earnings per share (or EPS) guidance in line with the company’s projections for its 2016 revenues. The company previously projected that in 2016, it would report adjusted non-GAAP1 EPS in the range of $6.60–$7.00.

According to updated guidance, the company expects that $0.38 per share could be lost due to operational inefficiencies. Bausch + Lomb/International, Branded Rx, and US Diversified Products segments are expected to have a negative impact of $0.55, $0.45, and $0.20 per share, respectively, on Valeant Pharmaceutical’s fiscal 2016 EPS.

Why Did Valeant Pharmaceuticals Update Its 2016 EPS Guidance?

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The above diagram shows the various factors that have negatively affected Valeant Pharmaceuticals’s 2016 EPS guidance. If Valeant Pharmaceuticals continues to face these challenges in future quarters, it may have an adverse impact on its stock, as well as on the Guru Activist Index ETF (ACTX). Valeant Pharmaceuticals makes up ~0.25% of ACTX’s total portfolio holdings.

Multiple challenges

In 3Q16, Valeant Pharmaceuticals (VRX) reported lower-than-anticipated revenues from its Dermatology segment, as its back-to-school strategy underperformed expectations. The company is also facing competition from peers such as Anacor Pharmaceuticals (ANAC), Novartis (NVS), and Sanofi (SNY) in the Dermatology segment.

Valeant Pharmaceuticalsalso faced challenges in the European market due to reduced consumer inventory levels and demand in Poland. The company has also suffered from revenue losses due to the recall of its PeroxiClear solution as well as due to disruptions in the supply of its dental product, NeutraSal.

The largest downward pressure on 2016 EPS guidance was exerted by Bausch + Lomb/International segment. In addition to Poland, demand for Valeant Pharmaceuticals’s products has also been subdued in Middle East markets such as Egypt and Turkey. The currency devaluation in Egypt further dampened Valeant Pharmaceuticals’s growth prospects. The company has also faced a drop in demand in Western European markets, Australia, and Asia.

  1. generally accepted accounting principles
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