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Pfizer’s 1Q16 Earnings: Profitability and Financial Guidance

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Pfizer’s profitability

Pfizer (PFE) reported an increase of ~19.7% in revenue during 1Q16. Revenue came in at $13.0 billion for 1Q16 as compared to $10.9 billion for 1Q15. This includes revenues from Hospira, which was acquired by Pfizer in September 2015.

Pfizer’s net profit margin improved to 25.5% in 1Q16 as compared to ~22.5% in 1Q15, while its gross margin decreased to 80.3% in 1Q16 as compared to 83.4% in 1Q15. The cost of sales increased due to higher sales volumes.

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Operating profit margin improved by ~2.0% to 29.9% in 1Q16 as compared to 27.9% in 1Q15. Selling, informational, and administrative expenses increased due to the launch of new products as well as increased spending on promotional activities for existing products. R&D (research and development) expenses as a percentage of sales decreased as compared to 1Q15, as no payments were made for acquiring rights. In 1Q15, Pfizer had paid $295 million toward a development and commercialization agreement with OPKO Health (OPK) in 1Q15.

Revised financial guidance in 2016

Pfizer revised its financial guidance for 2016 during its 1Q16 earnings call. Revenue is now estimated to be between $51.0 billion and $53.0 billion, which is nearly 5% higher than 2015 revenue of $48.9 billion.

The estimated range for the cost of sales as a percentage of revenue remains between 21.0% and 22.0%. This is due to increased costs of sales for Hospira products. Also, selling, informational, and administrative expenses are estimated to be between $13.7 billion to $14.7 billion, while the R&D expenses are estimated to be between $7.4 billion to $7.8 billion following the developments of various products discussed in previous articles.

Pfizer has estimated adjusted EPS will be in the range of $2.38–$2.48 for 2016, following the impact of both Pfizer’s product portfolio and Hospira products.

To diversify risk, you can consider ETFs like the iShares U.S. Pharmaceuticals ETF (IHE), which holds ~8.6% of its total assets in Pfizer, ~5.0% in Allergan (AGN), ~9.8% in Johnson & Johnson (JNJ), ~7.0% in Bristol-Myers Squibb (BMY), and ~7.7% in Merck and Company. (MRK). You can also consider ETFs like the iShares U.S. Healthcare ETF (IYH), which holds 7.0% of its total assets in Pfizer.

In the next part of this series, we’ll discuss analysts’ recommendations for Pfizer.

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