For Immediate Release
Chicago, IL – November 3, 2010 – Zacks.com Analyst Blog features: Pfizer Inc. (PFE), MasterCard Inc. (MA), Capital One (COF), Delta Air Lines (DAL) and Visa Inc. (V ).
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Here are highlights from Wednesday's Analyst Blog:
Pfizer Misses on Top-Line
Pfizer Inc. (PFE) reported third quarter earnings of 54 cents per share, 3 cents above the Zacks Consensus Estimate, and 6% above the year-ago earnings of 51 cents. Performance was boosted by the Wyeth acquisition, which was partially offset by increased expenses and lower revenues from legacy Pfizer products.
Revenues were up 39%, mainly due to the Wyeth acquisition, which added $5.2 billion or 44% to the total. While foreign exchange negatively impacted revenues by $160 million or 1%, legacy Pfizer products negatively impacted revenues by $458 million or 4%. Third quarter revenues came in at $16.2 billion, short of the Zacks Consensus Estimate of $16.6 billion.
International revenues increased 33% to $9.1 billion, reflecting 35% operational growth and a 2% unfavorable foreign exchange impact. Meanwhile, US revenues increased 48% to $7.1 billion.
Following the Wyeth acquisition, Pfizer operates through two segments: Biopharmaceutical and Diversified. The Biopharmaceutical segment posted third quarter revenues of $13.9 billion, up 31%. Wyeth products contributed $3.9 billion to segment revenues with performance being boosted by drugs like Premarin, Enbrel, and Prevnar. Foreign exchange negatively impacted Biopharmaceutical segment revenues by 2% ($173 million).
Meanwhile, several Pfizer legacy products like Camptosar and Norvasc continued to struggle during the quarter, mainly due to the presence of generic competition. Moreover, Lipitor lost exclusivity in Canada and Spain earlier this year and impacted legacy Pfizer's performance by 4%.
The Diversified segment posted third quarter revenues of $2.2 billion, up 155%. Products like Centrum, Advil, and Caltrate and other Nutrition products helped boost revenues. Foreign exchange fluctuations did not have a material impact on Diversified revenues.
Guides In-Line with Expectations
Although Pfizer increased its 2010 earnings guidance, thB>e revised guidance was in-line with expectations. Pfizer now expects earnings in the range of $2.17 - $2.22 on revenues of $67 - $68 billion. The company was previously expecting earnings in the range of $2.10 - $2.20 on revenues of $67 - $69 billion. The 2010 Zacks Consensus earnings estimate currently stands at $2.22, towards the higher end of the guidance range provided by the company. The Zacks Consensus revenue estimate is currently $67.7 billion.
Pfizer also maintained its long-term guidance for 2012. The company expects to earn $2.25 - $2.35 per share in 2012 on revenues in the range of $65.2 - $67.7 billion. Pfizer said that it remains on track to achieve its goal of realizing synergies of about $4 - $5 billion from the Wyeth acquisition by the end of 2012.
Neutral on Pfizer
We currently have a Neutral recommendation on Pfizer, which is supported by a Zacks #3 Rank (short-term “Hold” rating). Near-term earnings growth will come in the form of cost-cutting and share repurchases. While Wyeth brings with it an attractive biologics platform and some complementary products and businesses, we do not believe they are enough to sustain long-term top-line growth.
We remain Neutral on Pfizer based on our reservations that Wyeth will provide the opportunity to grow revenue for the long-term and the substantially lower revenue growth due to key product patent expiration from 2011 onwards.
MasterCard Outshines; Profits Up
MasterCard Inc.'s (MA) third quarter operating earnings per share of $3.94 came in dramatically ahead of the Zacks Consensus Estimate of $3.54 and $3.45 in the year-ago quarter. Net income for the reported quarter was $518 million, up 14.6% from $452 million in the prior-year quarter.
Results improved over the prior-year quarter due primarily to better pricing, an increased number of processed transactions and reduced operating expenses, which drove the operating margin higher. However, increase in rebates and incentives and the flattish growth in number of processed transactions were on the downside for MasterCard.
Total revenue increased 4.7% year over year to $1.43 billion, above the Zacks Consensus Estimate of $1.41 billion. On a constant currency basis, net revenue increased 7.3% over the prior-year period. The increase was primarily due to a 7% favorable pricing changes, a 0.6% growth in the number of processed transactions to 5.8 billion and a 15.4% increase in cross-border volumes.
Gross dollar volume increased 8.5% to $685 billion during the reported quarter. As of September 30, 2010, MasterCard issued 1.6 billion MasterCard and Maestro-branded cards.
Total operating expenses decreased 4.1% year over year to $662 million. Currency fluctuation contributed 1.5 percentage points to the increase in the expenses. The overall decrease was primarily attributable to a 6.7% decrease in general and administrative expenses. While advertising and marketing expenses increased 4.7%, depreciation and amortization expenses remained flat. The operating margin for the reported quarter came in at 53.6%, up from 49.4% in the year-ago quarter.
MasterCard's effective tax rate for the reported quarter was 32.3%, marginally down from 32.9% in the year-ago period.
As of September 30, 2010, MasterCard's net operating cash flow was $1.03 billion, down from $1.09 billion as of September 30, 2009. At the end of September 30, 2010, cash and cash equivalents increased to $2.48 billion, long term debt reduced to $1 million, retained earnings increased to $2.52 billion, while total equity was higher at $4.84 billion from December 31, 2009.
Business Update
During the reported quarter, MasterCard enhanced its global debit portfolio with new agreements that include Sovereign Bank, Chevy Chase - now part of Capital One (COF) - and Delta Air Lines (DAL) in the U.S., Barclaycard in Germany and Qatar Islamic Bank. The company also signed a memorandum of understanding with China Union Pay and got into an agreement with Singtel, one of the larger mobile operators in Asia, thereby expanding its presence in emerging growth markets and channels.
Further, on October 22, MasterCard completed the acquisition of DataCash Group plc for about $526 million, expanding its e-Commerce merchant gateway presence in Asia and Australia to European countries and other global high-growth emerging markets.
Our Take
MasterCard's results have outshone its prime competitor, Visa Inc. (V ), which reported its fiscal fourth quarter earnings of 95 cents on October 27, 2010. This came in line with the Zacks Consensus Estimate but came in substantially ahead of 74 cents reported in the year-ago quarter.
MasterCard benefits from strong secular demand growth, meaningful international exposure, high barriers, excellent pricing power, risk-free balance sheet and impressive operating leverage. Also, the above-average earnings growth, strong competitive position and leverage to an eventual economic recovery will result in a relative valuation premium.
However, we are concerned about MasterCard's resilience and ability to raise prices, the detrimental effects of the Consumer Protection Act in the U.S., and scope for increasing cash flow. Hence, the cautious outlook over the near term justifies our Neutral recommendation.
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