uploads///Actual Vs Estimate

Why Novo Nordisk Fell after Its 4Q15 Earnings Release

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Dec. 4 2020, Updated 10:42 a.m. ET

Revenue and earnings per share for 4Q15

Novo Nordisk (NVO), the Danish pharma giant, announced earnings for 4Q15 and fiscal 2015 on February 3, 2016. Revenues for fiscal 2015 stood at 107.93 billion Danish kroner in 2015, up by ~21.5%. Revenues were in line with Wall Street analyst expectations of 107.86 billion Danish kroner. The revenues beat earnings estimates of 0.1%.

The graph above demonstrates actual versus estimated revenues for Novo for the past five quarters. During the fourth quarter of 2015, Novo recorded revenues amounting to 28.9 billion Danish kroner, whereas analysts were expecting it to be 28.8 billion Danish kroner. The growth was majorly driven by Victoza and Levemir.

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Sales for Victoza for fiscal 2015 jumped by 34% on a reported basis, making it a clear market leader in the glucagon-like peptide-1 (or GLP-1) segment where it holds 56% of the market share in terms of volume. For further information on Victoza, please refer to Novo Nordisk’s Victoza Maintains Leadership in GLP-1 Market. Levemir sales grew by 29% in 2015.

For 2015, diluted earnings per share (or EPS) remain at ~13.52 kroner, which was marginally lower than analysts’ expectations.

Wall Street analysts expected EPS during 4Q15 to be 3.32 kroner. However, Novo recorded EPS of 3.24 kroner, leading to an earnings miss of 2.5%.

Share price movement

After the announcement of Novo’s earnings for 4Q15 and fiscal 2015, the stock tumbled by ~6%. Though Novo just met the expectations of revenue, EPS numbers were marginally lower than the expectations.

During fiscal 2015, operating profit growth was 21% in local currency terms. However, for 2016, the company is expecting 5-9% growth in the operating profit flowing from sales growth. The downward revision of the long-term operating profit growth from 15% to 10% could have been taken as a negative, and caused the fall for the giant on earnings day.

The share price for Novo has jumped by ~16% during the last one year, whereas Eli Lilly’s (LLY) share price rose 5.7% during the period. However, for the last one year, Merck & Co. (MRK) and Sanofi (SNY) have underperformed and fallen by 17% and 11%, respectively.

To avoid the direct risk associated with the company, investors can opt for the Vectors Pharmaceutical ETF (PPH). Novo Nordisk accounts for 4.9% of PPH’s total holdings.

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