uploads///Revenues

Why Teva’s 1Q15 Revenues Declined Marginally

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May. 7 2015, Updated 6:11 a.m. ET

Revenue performance

In 1Q15, Teva (TEVA) beat Wall Street analysts’ revenue estimates of $4.81 billion, posting revenues of $4.98 billion, an increase of ~3.5%. However, the company’s reported revenues declined marginally by 0.4% in 1Q15 from 1Q14. This is primarily due to a negative currency impact of $368 million in 1Q15.

Excluding the currency impact and divestment of the US OTC (or over-the-counter) plants to Procter & Gamble (PG), revenues were up by 8%. Teva generated ~41% of its revenues outside the US. The US revenues grew by ~11%, and international revenues fell by ~13%. The weakening euro had a significant impact on its revenue.

Teva marginally beat analyst estimates by ~0.4% last quarter. However, its actual results were lower than expectations for the first three consecutive quarters in 2014.

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Generics, the major revenue growth driver

As evident from the above chart, generics contributed significantly to Teva’s net revenues in 1Q15. Generic revenues were up 9% to $2,621 million in 1Q15, primarily driven by the strong performance of the US business. The US market revenues grew 37% due to the launch of a generic version of Nexium, as well as other products such as generic Lovaza that were not sold in 1Q14.

In the US, Teva launched the generic version of AstraZeneca’s (AZN) gastrointestinal drug Nexium on February 17, 2015.

Domestic and international growth

The US revenue growth was partially offset by international revenues. The company’s focus on key growth markets led to a 17% decline in Europe revenues, however, profitability improved. Germany, the UK, and Italy reported strong performance primarily offset by a significant decrease in Spain and France.

The rest of the world (or ROW) reported a 6% decrease, but an 11% increase in local currency. This was primarily driven by higher revenues in Russia and Latin America, which were partially offset by lower revenues in Japan and Canada.

As an alternative to investing directly in Teva, you might consider pharmaceutical funds such as the iShares US Healthcare ETF (IYH) and the First Trust Health Care AlphaDEX ETF (FXH). The generic companies make up approximately 5.38% and 6.74% of these funds’ total holdings, respectively.

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