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What’s Expected of Novartis’s Core Operating Income in 2018?

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Core operating income growth trends

Novartis (NVS) has projected that its fiscal 2018 core operating income will be higher by mid- to high-single digits on a YoY (year-over-year) basis. The company expects core operating income, however, to remain flat or only rise by low-single digits on a YoY basis in 1H18.

While the company has projected robust growth trends for its IM (Innovative Medicines) and Alcon segments, Novartis expects to witness increasing pricing pressures in the US in its Sandoz segment.

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Additionally, Novartis also expects to face significant top-line pressures due to the generic erosion of Gleevec-Glivec and expects increased expenses to support the commercial launches of some oncology drugs. Novartis expects to see an increase in the YoY growth rate of core operating income in 2H18, however, as it will likely report higher revenues from the sale of its recently launched products from the IM and Sandoz segments.

Wall Street analyst projections

Wall Street analysts have projected Novartis’s fiscal 2018 core EPS (earnings per share) to be around $5.37, which would represent a YoY rise of ~10.5%.

By comparison, peers Pfizer (PFE), Merck (MRK), and Bristol-Myers Squibb (BMY) are expected to report adjusted diluted EPS of close to $2.95, $4.15, and $3.29, respectively, for fiscal 2018.

Expenses guidance

Novartis has projected that its fiscal 2018 core net financial expenses will be higher by ~$100 million on a YoY basis, mainly on account of increased interest expenses. These higher expenses will likely be attributable to the impact of bonds issued to fund its 2017 share buyback program as well as to the financing required for the acquisition of Advanced Accelerator Applications.

Novartis expects to see a core tax rate of close to 16% for fiscal 2018, which would be flat or a little higher on a YoY basis. While the recently passed Tax Cuts and Jobs Act is expected to benefit Novartis, this may get offset by the shift of the company’s profit mix toward jurisdictions with higher tax rates.

In the next part of this series, we’ll discuss the net profit margin trends for Novartis in greater detail.

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