When Pfizer (NYSE:PFE) reported its third-quarter results in October, the big drugmaker announced a mixture of good news, bad news, and so-so news. Although the company's essential health segment weighed on its overall performance, there were some bright spots.
It was a similar story when Pfizer announced its fourth-quarter and full-year 2017 results on Tuesday before the market opened. The market reacted somewhat negatively to the big pharma company's update, with Pfizer shares declining 3% in early trading. However, this time, there's more good news than there has been in quite a while. Here's what you should really look at with Pfizer's Q4 update.
By the numbers
Let's start with the headline numbers. Pfizer reported fourth-quarter revenue of $13.7 billion, up 1% from the prior-year period. The figure was in line with Wall Street estimates.
However, Pfizer easily beat what Wall Street analysts expected on the bottom line. The company announced Q4 adjusted diluted earnings per share (EPS) of $0.62, a 32% year-over-year jump. The consensus analysts' estimate was $0.56.
On a GAAP basis, Pfizer posted earnings of nearly $12.3 billion, or $2.02 in diluted EPS. That reflected a huge increase over the $775 million ($0.13 per share) in GAAP net income reported in the fourth quarter of 2016. There is a catch in the comparison versus the prior-year period, though: Pfizer enjoyed a tax benefit in 2017 Q4 of $11.3 billion thanks in large part to recent U.S. tax reform.
Breaking down the revenue streams
Fourth-quarter Ibrance sales of $716 million weren't nearly as high as what I had expected. In fact, Q4 sales for the cancer drug were lower than they were in the third quarter. A big reason for this, though, was the negative impact of a one-time price adjustment related to finalizing reimbursement agreements in some European markets. Without this adjustment, Ibrance sales would have looked much better.
On the other hand, Q4 revenue for Eliquis came in higher than what I anticipated. Pfizer reported the anticoagulant generated $710 million, up 46% from the prior-year period.
Pfizer had several other products with strong sales momentum during the fourth quarter. Sales for smoking cessation product Chantix increased 28% year over year to $271 million. Legacy drug Lipitor saw sales climb to $574 million, a 24% increase over the prior-year period. The best growth of all from Pfizer's lineup of blockbusters, though, came from autoimmune disease drug Xeljanz, with Q4 sales soaring 47% year over year to $410 million.
An important positive development for Pfizer in the fourth quarter was that Prevnar 13 returned to growth. Sales for the pneumococcal vaccine grew 8% to $1.5 billion. Although that increase isn't as impressive as some of the other products, Prevnar 13 is Pfizer's top-selling product. Even smaller percentage growth for the vaccine means a lot for Pfizer.
Of course, there were plenty of laggards. Pfizer's essential health segment continued to weigh on overall performance, with a 7% year-over-year sales decline. Enbrel continued to struggle against biosimilar rivals, with Q4 sales falling 10% from the prior-year period to $634 million. Five other innovative health drugs also experienced year-over-year sales declines.
The biggest story
What really mattered in Pfizer's earnings report was the company's 2018 outlook. And that outlook was quite good.
2018 revenue is expected to be between $53.5 billion and $55.5 billion. The midpoint of that range reflects year-over-year revenue growth of 4% -- an improvement over Pfizer's recent past. It's also higher than the consensus Wall Street revenue estimate of $53.88 billion.
Pfizer projects adjusted diluted EPS in 2018 between $2.90 and $3.00. This reflects an increase of 11% at the midpoint. And it's well above the average analysts' earnings estimate of $2.78. This adjusted diluted EPS outlook includes the impact of anticipated share repurchases of $5 billion.
The company didn't officially announce a dividend increase, but one appears to be on the way. Pfizer stated that it anticipates quarterly dividend payments in 2018 of $0.34 per share, which would be an increase of a little over 6% from the current dividend payment of $0.32 per share.
So with higher revenue, earnings, and dividends likely on the way, why did Pfizer stock fall on Tuesday rather than move higher? Part of it could be that investors were expecting even greater benefits from tax reform. However, the biggest reason is probably simply that the overall market fell. It's hard to swim against the tide.
Still, Pfizer appears to be on track for a better year in 2018 than it's had in a while. The stock is trading at a lower forward earnings multiple than many others and claims one of the more attractive dividends around. I think those are the most important things to focus on right now.