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Honing in on Novo’s 3Q16 Revenue and Earnings

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Revenue in 3Q16 

Novo Nordisk (NVO) reported earnings for 3Q16 on October 28, 2016. Wall Street analysts were expecting Novo to record ~28.1 billion Danish kroner during the third quarter of 2016. Novo disappointed Wall Street with reported revenues of ~27.5 billion Danish kroner for the period, resulting in -2% revenue surprise.

During its 3Q16 earnings, Novo lowered its long-term outlook for sales and operating profit growth. With the preliminary outlook of low-single-digit sales growth and flat-to-low single-digit operating profit growth in 2017, the stock slipped almost 13% to $35.66 on October 28 from its earlier close of $40.94. Novo was expecting a long-term operating profit growth of 10%. However, with the challenging environment in the US, Novo now aims for average operating profit growth of 5% over the long term.

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Novo’s efforts to control the margin drag 

In 3Q16, Novo reported non-GAAP (generally accepted accounting principles) diluted EPS (earnings per share) of ~3.87 Danish kroner. Wall Street analysts expected Novo’s earnings to be ~3.79 Danish kroner per share.

In 3Q16, Novo’s gross margin stood at 85.5% against 85.6% in 3Q15. The ten-basis-point fall in the gross margin was following an unfavorable product mix resulting from lowered shares of NovoSeven. Negative pricing pressure is further expected to impact Novo’s gross margins. To moderate this effect, Novo plans to control other costs such as sales and distribution. To cut down its operating costs further, in September, the company announced plans to reduce its workforce by 1,000 employees.

For exposure to Novo Nordisk, you can consider the VanEck Vectors Pharmaceutical ETF (PPH), which invests 4.2% of its total holdings in the company. Along with Novo, PPH invests in Sanofi (SNY), Merck (MRK), and Pfizer (PFE).

Let’s discuss Novo’s revenue growth in 3Q16 in the next article.

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