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Pfizer’s Profitability and Financial Guidance

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Pfizer’s profitability

Pfizer (PFE) reported a fall of ~3.0% in revenues for 4Q16. Reported revenues were $13.6 billion for 4Q16 compared to $14.1 billion for 4Q15.

Pfizer’s net profit margin fell to 21.2% for 4Q16 compared to ~23.5% for 4Q15. Its gross margin fell to 77.7% in 4Q16 compared to 78.8% in 4Q15 due to pricing pressures on several drugs and increased sales volumes for its low-margin products.

The selling, general, and administrative expenses as a percentage of sales remained nearly flat due to lower promotional activities in 4Q16. Research and development expenses as a percentage of sales rose compared to 4Q15, primarily due to higher costs for oncology products.

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Financial guidance for 2017

When Pfizer released its 4Q16 results on January 31, 2017, it also released its financial guidance for 2017. It estimated its revenues at $52.0 billion–$54.0 billion compared to 2016 revenues of $52.8 billion.

It revised its estimated range for the cost of sales as a percentage of revenues from 20.0% to 21.0%. That could improve the company’s gross margin for 2017. Selling, general, and administrative expenses are estimated at $13.7 billion–$14.7 billion, while research and development expenses are estimated at $7.5 billion–$8.0 billion, following developments in various products. The company also estimates other expenses of approximately $100.0 million.

Pfizer has estimated adjusted EPS (earnings per share) at $2.50–$2.60 for 2016, following the impact of Pfizer’s product portfolio as well as its Hospira products.

To divest the risk, you can consider investing in ETFs such as the VanEck Vectors Pharmaceutical ETF (PPH). PPH holds ~6.8% of its total assets in Pfizer, ~4.6% in AstraZeneca (AZN), ~4.5% in Novo Nordisk (NVO), and 4.7% in Abbott Laboratories (ABT).

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