Results for the third quarter were quite satisfactory. Sales climbed 18% (as measured in local currency), though that figure is misleading because it's fluffed by acquisitions. Stripping those out, the company posted about 9% sales growth, with the pharmaceutical business growing 9% and the consumer health business growing 8%. Operating margins softened a bit from the year-ago level, but not to an alarming degree. Operating income rose 17% and net income came in 13% higher than in the year-ago period.
It would seem that once again the pharmaceuticals business is carrying more than its share of Novartis' load. Operating income in the drug business rose 20%, while in the consumer health business it fell 1% from the year-ago level. Because of the impact of the acquisitions, it's difficult to gauge the performance of the Sandoz generic business other than to say it was positive and seems to be doing better than management had originally forecast.
I won't spend any time going over the drug-by-drug results. I'd encourage investors and shareholders to investigate that themselves by reading the company's financial press release. I will say, though, that the top 10 brands account for about two-thirds of total drug sales -- a pretty normal percentage for the most part.
Novartis shareholders can also take heart in the company's high-quality pipeline. New compounds for diabetes, hypertension, multiple sclerosis, and hepatitis C are in advanced development, and the company also has a host of experimental cancer drugs as well. Some of these will likely fail and others will face fierce competition from compounds from rivals like Merck
I don't think you have to make any particularly heroic growth assumptions to find value in Novartis, and that's a good thing because heroic assumptions often lead to epic disappointments. It's not as cheap as perhaps Pfizer or Merck, but it doesn't have the same problems either. Though personally not my top choice in pharmaceuticals, it's still a well-run and reasonably valued company.
For more on the drug sector:
Merck and Glaxo are Motley Fool Income Investor recommendations.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).