On the surface, Bristol-Myers Squibb's (NYSE: BMY) earnings report looks rather shabby. Revenue was up just 2% and net income fell 5.7%, a fact highlighted by several stories after earnings were released yesterday morning.
But the numbers aren't quite what they seem. The company spun off its baby formula business, Mead Johnson Nutrition (NYSE: MJN), and handed over its interest in the business to shareholders in exchange for their shares in Bristol-Myers. The trade retired a substantial number of shares. So if you look on a per-share basis, earnings were up a solid 8%, even factoring in the missing profit from Mead Johnson.
While peers Pfizer (NYSE: PFE), Merck (NYSE: MRK), and GlaxoSmithKline (NYSE: GSK) have diversified toward consumer health, animal health, and developing countries, Bristol-Myers has taken the opposite approach, selling off its assets to reinvest in its drug business.
It's a bit of a gamble. Bristol-Myers will lose megablockbuster Plavix, which it sells with sanofi-aventis (NYSE: SNY), in a few years. It needs to fill that void if it wants to meet its goal of having 2013 earnings that are higher than it had last year.
So far, new offerings such as diabetes medication Onglyza haven't hit their mark. The drug, which Bristol sells with AstraZeneca (NYSE: AZN), managed just $28 million in sales last quarter. That's just not going to cut it.
But Bristol-Myers does have a decent pipeline including potential melanoma treatment ipilimumab, which could easily be a blockbuster given the unmet need. Bristol can continue to build its pipeline by spending some of its substantial treasure chest, which grew by $476 million during the quarter.
Management is going to have to execute well to make the transition somewhat smooth, but Bristol-Myers has the tools to make that happen.
