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How Are Allergan’s Margins and Expenses Trending in 2019?

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Jun. 19 2019, Updated 1:20 p.m. ET

Margin and expense guidance

In its first-quarter earnings investor presentation, Allergan (AGN) guided for a 2019 non-GAAP (generally accepted accounting principles) gross margin of 85.0%–85.5%, in line with the consensus estimate of 85.48%. Analysts expect the company’s gross margins to be 85.23% and 85.43% in 2020 and 2021, respectively.

Allergan has guided for 2019 non-GAAP SG&A (selling, general, and administrative) expenses and R&D (research and development) expenses of $4.1 billion–$4.3 billion and $1.6 billion–$1.7 billion, respectively. The company has guided for 2019 net interest expenses of $800 million, while its tax rate is expected to be in the range of 13.0%–13.5%.

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EPS guidance

Based on the increase in its revenue guidance, in its first-quarter earnings investor presentation, Allergan raised its 2019 non-GAAP net income per diluted share guidance from greater than or equal to $16.36 to greater than $16.55. The company has guided for second-quarter non-GAAP net income per diluted share of $4.20–$4.40.

In the first quarter, Allergan reported diluted non-GAAP EPS of $3.79, a YoY rise of 1.34% and $0.22 higher than the consensus estimate.

Analysts expect Allergan’s diluted non-GAAP EPS to see YoY changes of -0.23% to $16.65 in 2019, 3.11% to $17.17 in 2020, and 7.20% to $18.41 in 2021. Analysts also expect the company’s diluted non-GAAP EPS to see YoY changes of -2.62% to $4.30 in the second quarter, -2.79% to $4.13 in the third quarter, and 3.86% to $4.46 in the fourth quarter of 2019.

Capital allocation strategy

Allergan has guided for cash flow from operations of $5.0 billion–$5.5 billion for 2019. According to its first-quarter earnings conference call, the company reaffirmed its four capital allocation priorities of reinvestment, debt reduction, dividend growth, and share buybacks for 2019. The company has already repurchased its 2019 target of $800 million of shares in the first quarter and doesn’t expect any more share repurchases in the remainder of 2019. The company has guided for an adjusted diluted share count of ~332 million for 2019.

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