AstraZeneca's third quarter profit hit by foreign exchange

AstraZeneca’s third quarter revenues have been hit by foreign exchange woes, but the company has upgraded its revenue outlook for the year and beat expectations for earnings per share.

The FTSE 100 pharmaceutical company posted its third quarter results to 30 September on Thursday, showing year to date revenues flat at constant exchange rates on the previous year at $18.3bn (£11.9bn) as the quarter only brought in $5.9bn in total revenue – a 2% drop.

However the company has been hit by weakness in its key trading currencies against the US dollar, with an actual revenue year to date drop of 8%, and a quarterly drop of 10%.

Despite this, the company has upgraded its revenue guidance for the full year from a small decline to in line with the previous year, with core EPS now expected to grow in the mid-to-high single digits, versus a low single digit percentage increase previously.

The company said the decline in revenue at a constant exchange rate was due to lower takings from its partnerships, of which it brought in $95m for the quarter but $875m for the year to date.

Product sales also declined by 2% for both the quarter and the year to date due to a change in accounting for the US Branded Pharmaceutical Fee.

The US market entry of its Nexium generic products from February also had an impact as they lost exclusivity in the market. That sent US sales of the drug down 48% to $727m for the year to date, and overall sales of the product down 26% to $1.9bn.

However, the company’s profit is looking relatively healthy, with core operating profit for the quarter up 7% on a constant exchange rate basis but down 2% based on actual exchange rates.

Earnings per share of $1.03 were 2% above consensus forecasts but this was due to core EBIT margin boosted by disposal gains.

AstraZeneca chief executive Pascal Soriot said the company’s financial performance underpinned the upgrade to its full year guidance.

“2016 will be a pivotal year in our strategic journey as we face the impact of loss of exclusivity to Crestor in the US. Looking ahead however, the continued performance of our growth platforms and upcoming launches will combine with our increasing focus on costs and cash generation to help offset short-term headwinds and return AstraZeneca to sustainable growth."

Analysts at Societe Generale noted that total revenues was in line with consensus forecasts and that EPS was 2% above.

"The bears will no doubt moan that the core EBIT margin beat was due to disposal gains but most of these were well flagged previously," they wrote, adding that the consensus currently forecast underlying sales and core EPS growth of -2% and +7% respectively, "so a mechanical upgrade to consensus 2015 core EPS looks unlikely".

With a target price of 6,600p, SocGen highlighted the main risks being that blood thinner Brilinta could face earlier generic competition if a patent term extension isn’t awarded; that AZN’s high profile cancer pipeline "could" fail to deliver positive clinical trial results; and that biosimilar competition to Byetta and Bydureon "could occur earlier because the molecule is not protected by the most reliable type of patent".

Goldman Sachs said it was encouraged by solid EM market sales in light of softening commentary from EU Pharma peers" and by the company's new trials in immuno-oncology and "look for further details on its commercial positioning versus competitors, and whether Atlantic will be sufficient to support regulatory filing as potentially the 4th PD-L1 [programmed death-ligand 1 inhibitor] to market".

GS added: "We believe that the key investing debate around AZN today is focused not on the near-term earnings profile, but rather on the outlook for the pipeline and the resultant growth post 2017."