What happened
After Valeant Pharmaceuticals (VRX +1.12%) reported a 10% year-over-year decline in sales during the fourth quarter and issued soft guidance, its shares fell 11.4% on Wednesday.
So what
Valeant Pharmaceuticals is executing on a turnaround plan that allowed it to deliver market-beating returns in 2017. However, the company's fourth-quarter financials show there's still a lot of work to do before it can say its past challenges are firmly behind it.
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Sales were $2.163 billion in the quarter, down 10% from the same quarter of 2016, and non-GAAP net income was $347 million, a 21.7% decrease from one year ago. Revenue at Bausch & Lomb, arguably its most important business, slipped 3% year over year to $1.23 billion. Branded Rx sales fell 19% to $602 million and U.S. diversified products segment sank 63% to $335 million.
Valeant Pharmaceuticals also reported its full-year 2017 financials. Revenue tumbled 10% to $8.7 billion and adjusted net income plunged $567 million to $1.35 billion.
| Segment | FY2017 | FY2016 | $Change | % Change |
|---|---|---|---|---|
| Bausch + Lomb/International | $4,871 | $4,927 | ($56) | (1%) |
| Branded Rx | $2,475 | $2,828 | ($353) | (12%) |
| U.S. diversified products | $1,378 | $1,919 | ($541) | (28%) |
| Total revenue | $8,724 | $9,674 | ($950) | (10%) |
Falling sales aren't surprising, especially since the company's been selling assets to help pay down debt as a result of past acquisitions. Since the end of Q1 2016, management's been able to cut its debt by $6.7 billion, including $4.8 billion in reductions in 2017. Exiting December, it still owed $25.4 billion in long-term debt, though, and because of restructurings, its interest expense last year was virtually unchanged at $1.8 billion.
Now what
Management's 2018 forecast suggests that sales could fall further this year. It's guiding for revenue between $8.1 billion to $8.3 billion and non-GAAP EBITDA of between $3.05 billion to $3.20 billion. For comparison, non-GAAP EBITDA was $3.6 billion. The forecast should allow Valeant Pharmaceuticals to remain above the 1.5 times EBITDA to interest expense covenant that could otherwise trigger default.
Overall, the company's revenue forecast isn't overly encouraging, but it's done a good job of pushing back debt maturities and that's providing it wiggle room to continue orchestrating its turnaround. There are still questions to be answered regarding outstanding lawsuits and competitive pressures, however, so Valeant Pharmaceuticals isn't out of the woods yet.
