Comparing Endo’s and Mallinckrodt’s Gross Margin Forecasts

Gross margin comparison

In its fourth-quarter conference call, Endo International (ENDP) guided for its gross margin contracting YoY (year-over-year) in fiscal 2019 to 65.0%–66.0% from 67.90%, partially due to its product mix shifting. Endo’s sales mix changed when it launched authorized generic versions for some of its branded drugs in 2018’s third quarter. Also, many of its wide-margin generic products are facing intense competition. These challenges are reflected in analysts’ estimates for Endo’s fiscal 2019, fiscal 2020, and fiscal 2021 gross margins of 64.68%, 66.89%, and 67.66%, respectively.

In its fourth-quarter conference call, Mallinckrodt (MNK) guided for its fiscal 2019 gross margin staying the same YoY, at ~72.40%. Analysts expect Mallinckrodt’s gross margins to be 73.63%, 76.62%, and 76.16% in fiscal 2019, fiscal 2020, and fiscal 2021, respectively. Therefore, Mallinckrodt’s gross margins are expected to be wider than Endo’s from fiscal 2019 to fiscal 2021.

Comparing Endo’s and Mallinckrodt’s Gross Margin ForecastsTax rates

In its fourth-quarter conference call, Endo International guided for a fiscal 2019 effective tax rate of 17.5%–18.5%, and low cash tax in 2019. Analysts expect Endo’s effective tax rate to be 16.96%, 15.96%, and 16.46% in fiscal 2019, fiscal 2020, and fiscal 2021, respectively.

In its fourth-quarter press release, Mallinckrodt guided for an adjusted effective tax rate of 14%–16% in fiscal 2019. Analysts expect its effective tax rate to be 13.15%, 13.20%, and 13.35% in fiscal 2019, fiscal 2020, and fiscal 2021, respectively. Therefore, Endo’s effective tax rate is expected to be higher than Mallinckrodt’s. Next, we’ll discuss Endo’s growth drivers in fiscal 2019.