Shares declined ~2% after earnings
Novartis (NVS) reported its earnings on July 21, 2015, at 8:00 AM EST. After the release, shares closed at $103.71, down ~2.3% from the previous day’s closing of $106.12. The downward price movement was driven by the following:
- a 5% decline in revenues in 2Q15
- a 28% decline in operating income (or 14% at constant currencies)
- concerns over the company’s long-term growth prospects
Like Novartis, Johnson and Johnson’s (JNJ) revenues also declined in 2Q15 due to the strong US dollar. Other industry peers are yet to release 2Q15 results.
Outlook for 2015
Despite the negative impact of currency and Alcon’s weak performance, Novartis raised its financial outlook for full-year 2015. Novartis expects mid-single-digit growth for fiscal 2015. The company expects mid-single-digit growth for the pharmaceuticals segment and high-single-digit growth for the Sandoz segment in fiscal 2015. The Alcon segment is expected to remain weak.
Focus for 2015
The Novartis group has laid out five priorities for 2015:
- deliver strong financial results
- strengthen innovation
- complete the portfolio transformation
- capture cross-divisional synergies
- build a high performing organization
Novartis is focused on its key growth products, including Gilenya, Afinitor, Tasigna, Xolair, Tafinlar/Mekinist combination, and Jakavi in order to deliver strong financial results. Novartis is also focused on emerging growth markets, which include all markets except the US, Canada, Japan, Western Europe, Australia, and New Zealand.
As part of Novartis’s efforts to strengthen innovation, the company reported continued pipeline progress and new approvals, including Entresto and Glatopa.
In the portfolio transformation, Novartis has already acquired GlaxoSmithKline’s (GSK) oncology portfolio on March 2, 2015, and expects to complete its divestment of the influenza vaccines business to CSL in 2015 subject to customary closing conditions.
For cross-divisional synergies, Novartis set up a shared services organization named Novartis Business Center (or NBS) and had transferred over 9,000 full-time employees to NBS at the end of 2Q15. Novartis has selected five locations worldwide for Global Service Centers. The company is also implementing ways to reduce IT applications by 40%.
Major competitors for pharmaceuticals include Teva Pharmaceuticals (TEVA), Merck and Co. (MRK), and Pfizer (PFE). Investors can also consider the Health Care Select Sector SPDR ETF (XLV), which is focused on pharmaceuticals and healthcare companies.