In response to reporting rough second-quarter results, shares of Teva Pharmaceutical Industries (NYSE:TEVA), a leading provider of generic drugs, dropped 24% as of 1:15 p.m. EDT on Thursday.
Here's a review of the key takeaways from the company's second-quarter results:
- Revenue jumped 13% to $5.68 billion, thanks largely to the inclusion of the Actavis Generics business that was acquired from Allergan (NYSE:AGN) last August. On a currency-neutral basis, this figure rose 17% year over year, but it came up shy of the $5.72 billion in revenue that Wall Street had expected.
- Teva's U.S. generic business is facing major pricing and volume pressure due to consolidation among its customers and increased competition.
- Specialty revenue dropped 9% during the quarter. While sales of many specialty drugs were weak, sales of multiple-sclerosis treatment Copaxone, the company's top-selling drug, fell 10% to $1.0 billion and were a major source of the overall decline.
- Adjusted gross margin plunged 570 basis points when compared to the year-ago period.
- A goodwill impairment charge of $6.1 billion was recorded during the quarter because of "market dynamics of the U.S. generics unit." That charge drove a GAAP (generally accepted accounting principles) net loss of $6 billion for the quarter.
- Adjusted net income fell 20% to $1.0 billion, or $1.02 per share, a figure that also fell short of the $1.06 that market-watchers had predicted.
- An interim dividend of $0.085 per share was declared. This represents a cut of 75% when compared to last year.
The lower-than-hoped for results also caused management to pull back on its guidance for the year. The company now expects adjusted full-year revenue to land between $22.8 billion and $23.2 billion. That's down from its prior outlook of $23.8 billion to $24.5 billion.
The adjusted figure for earnings per share was taken down a notch, too. The new range is $4.30 to $4.50, which is down from the prior outlook of $4.90 to $5.30.
Given the disappointing quarterly results, slashed dividend, difficult operating conditions, and lowered guidance, it is easy to understand why traders are mauling the company's stock today.
"All of us at Teva understand the frustration and disappointment of our shareholders in light of these results."
That's a direct quote from Teva's interim president and CEO Yitzhak Peterburg in regards to the company's poor second-quarter performance. He promised that the company "will continue to take action to aggressively confront our challenges."
Allergan, which became Teva's largest shareholder as part of last year's Actavis acquisition, is also being impacted by this dreadful report. The company was recently forced to record a $2 billion writedown charge in response to Teva's horrendous stock-market performance. While Allergan hadn't been able to sell its hefty position in Teva because of lock-up restrictions associated with the sale, that 12-month trading blockade has since ended. That means that if it wants, Allergan could choose to look for an exit soon.
In total: Teva's primary businesses are performing poorly, the company is still searching for a new CEO, it carries a mountain of debt, and its largest shareholder now has the green light to look for an exit. Those are a lot of headwinds working against the company, helping to explain why shares are trading near a 13-year low.
Could Teva's "cheap" valuation allow some brave investors to make a bundle by buying shares today? That's always a possibility, but with so much going wrong, it's hard not to view the stock as a falling knife. I, for one, plan on keeping far away from this deeply troubled company.