MORRISVILLE, NC--(Marketwire - Jan 27, 2012) - Tekelec (NASDAQ: TKLC) today announced the completion of its acquisition by a consortium led by Siris Capital Group, LLC ("Siris") and including affiliates of The ComVest Group, funds and accounts managed by GSO Capital Partners LP, Sankaty Advisors LLC, ZelnickMedia and other Siris limited partners and affiliates, in a transaction valued at approximately $780 million. The transaction was initially announced on November 7, 2011 and was approved by Tekelec's shareholders on January 25, 2012.

ITT Educational Beats Estimates – Analyst Blog

ITT Educational Services Inc. (ESI), one of the leading providers of technology-based post-secondary degree programs in the U.S., reported fourth-quarter and full year 2011 results that outperformed the Zacks expectation.

ITT Educational’s fourth quarter earnings of $2.87 per share smoothly surpassed the Zacks Consensus Estimate of $2.31. However, earnings for the quarter dipped 8.6% compared to the year-ago quarter earnings of $3.14 per share.

For full-year 2011, the company’s earnings per share of $11.13 showed a significant rise from the Zacks Consensus Estimate of $10.56 while it dropped 0.4% from $11.17 earned for full-year 2010.

ITT Educational registered a 10.2% decline in revenue in the fourth quarter. Quarterly revenue totaled $368.3 million compared with $410.1 million in the prior-year quarter. Revenue for the full year was $1.5 billion, a decline of 6.0% from $1.6 billion in the year-ago period.

In fourth-quarter 2011, the company witnessed a 13.5% decline in total enrollment to 73,255 students compared with 84,686 students in the prior-year period. The overall decline in enrollment was mainly attributable to a 14.7% drop in new enrollment to 15,125 students due to an 80% decline in new student enrollment in the school of criminal justice. Revenue per student inched down 0.2% to $4,694 in the fourth quarter, while it declined 2.8% to $18,370 for the full year.

During the quarter, ITT Educational witnessed a 9.7% increase in advertising expenditures. The increase was, however, below the company’s estimated 15% to 20% increase for the fourth quarter. The better-than-expected result was mainly due to the company’s shift from using the low-cost less result oriented media or the expensive traditional media forms to alternative sources focused on producing higher rates of return.

This shift in media mix resulted in a decline in the number of probable students interested in the company's study programs. In the fourth quarter, the company also reduced the number of admission representatives by 22%. However, the media shift helped increase the rate of prospective students that transformed into new students.

Going forward, ITT Educational expects the number of admission representatives at the end of 2012 to be at the same level as at the end of 2011.

The company pointed out that its graduate employment metrics continue to suffer due to the slow economy and high unemployment rate. However, the company sees some hope of improvement as its graduate employment rate of 2011 employable graduates as of January 24, 2012, increased nearly 580 basis points from the year-ago period. Also, average annual salary of its 2011 employed graduates showed an improvement of 1% from last year.

On a further optimistic note, the company continues to expand geographically with five new ITT technical institutes started in Deerfield Beach, Florida; Grand Rapids, Michigan; Salem, Oregon; Overland Park, Kansas; and Indianapolis, Indiana, during the fourth quarter.

The company's nearest competitor Apollo Group Inc. (APOL) recently reported its first-quarter 2012 earnings per share of $1.28, declining 21.5% from the prior-period earnings of $1.63. However, earnings surpassed the Zacks Consensus Estimate of $1.18 per share.

Currently, we have a long-term Neutral rating on ITT Educational. The stock holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation.

 
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Chubb Beats; Guides for 2012 – Analyst Blog

Property and casualty insurer Chubb Corp. (CB) reported fourth quarter operating earnings of $1.63 per share, ahead of the Zacks Consensus Estimate of $1.60 per share. The better-than-expected earnings stemmed from higher premium written, favorable reserve release, a lower share count partly offset by lower investment income and a high cat loss.  Earnings were, however, lower than $1.69 per share reported during the prior year quarter, a period which was marked by benign cat activity.

Chubb reported net written premiums of $3.0 billion, up 4% year over year, reflecting rate improvements in all three of its business lines.

Fourth quarter combined ratio (a measure of an insurer’s profitability, the lower the better) deteriorated to 89.9%, compared with 87.0% in the prior year quarter. Adjusting for cat losses, combined ratio was 89.5% in 2011 compared with 85.6% last year.

Property and casualty investment income after tax was down 1% year over year to $316 million, primarily due to the continued decline in reinvestment rates. As per management’s estimates, property and casualty investment income after tax is expected to decline 3% – 5% in fiscal year 2012.

Adjusted book value per share, a measure of net worth, increased to $51.38 as of December 31, 2011, compared with $49.05 at 2010 year end. The growth in book value can be attributed to the favorable impact of the increase in unrealized gain position owing to a decrease in interest rates and offset by the unfavorable impact of lower interest rates on the value of the company's pension liability.

For the full year 2011, the company reported earnings of $5.12 per share, a nickel ahead of the Zacks Consensus Estimate. Net written premiums in 2011 increased 5% to $11.8 billion from $11.2 billion in 2010.

Segment Update

At Chubb’s Commercial Insurance (CCI) segment, net written premiums climbed 8% year over year to $1.2 billion during the reported quarter led by rate increase and strong retention levels. Management stated that the quarter saw a positive commercial rate environment and that the segment will continue to see increased business going forward.

Chubb's Specialty Insurance (CSI) net written premiums inched down 1% year over year to $736 million led by lower premium written professional liability lines partly offset by an increase in business in the surety lines. The average renewal rates for professional liability in the United States turned positive in the fourth quarter, a reversal from the trend of negative rates seen over the last three quarters (rates were negative 1% in the third quarter, 2% in the second quarter and 3% in the first quarter of 2011). The last time the professional liability lines obtained positive rate increases in the United States was in 2009, when there was a fair amount of market disruption in the wake of the financial crisis. Prior to that, rates had not increased since the first quarter of 2004.

Chubb’s Personal Insurance (CPI) segment’s net written premiums went up 3% year over year to $991 million. This represented the eighth consecutive quarter of growth, with particularly strong premium increases outside the U.S. Given the recent heavy cat and non-cat weather-related losses, the company is now filing for a rate increase in the homeowners lines of business in the the 5% – 6% range, higher than the earlier 2011 range of 3%–4%.

Capital Management

For the full-year 2011, Chubb repurchased 27.6 million shares at an aggregate cost of $1.7 billion and an average cost of $62.30 per share. As of December 31, 2011, there were approximately 909,000 shares remaining under the company’s December 2010 repurchase program. During January 2012, it repurchased all the remaining shares under this program at an average cost of $69.66 per share. Since December 2005, Chubb has repurchased approximately 45% of the outstanding shares. Just prior to the earnings release, the company announced the new $1.2 billion share repurchase program, which is intended to be complete by the end of January 2013.                                          

Higher 2012 Outlook

Management expects operating income per share for 2012 to be in the range of $5.30 – $5.70, which at the midpoint is $0.38 or 7% higher than the company’s actual operating income per share for 2011. This guidance is based on the expectation that net written premium growth will be 2% – 4%, assuming a negative 1% impact of foreign currency translation. Combined ratio is expected in the range of 93% – 95%.

Our Take

The big event for Chubb this year was extraordinary high levels of catastrophe losses. Despite record catastrophe losses, and a challenging macroeconomic and property and casualty industry environment, the company managed to perform well in 2011.

The year 2012 is expected to be a turnaround year for the insurance industry. The market continues to be firm and a continued increase in insurance pricing is expected, which will benefit top line growth. However, some of the headwinds such as low interest rates and declining reserve release will continue to put pressure on the company’s profitability.

Nevertheless, in our view Chubb’s strong capital position will enable it to return capital to shareholders and take advantage of opportunities to grow profitably. Moreover, Chubb’s superior underwriting, customer loyalty and conservative investing approach gives it a competitive edge over its peers like The Travelers Companies. (TRV), XL Group Plc (XL), The Allstate Corp. (ALL), W.R. Berkley Corp. (WRB) among others.

 
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KLA Has a Good Quarter – Analyst Blog

KLA-Tencor Corporation’s (KLAC) second quarter earnings exceeded the Zacks Consensus Estimate by 6 cents, driving the shares up 3.74% in after-market trading.

Revenue

KLA reported revenue of $642.5 million, which was down 19.3% sequentially, 16.2% year over year, within the guided range of $600-650 million and slightly ahead of the consensus estimate of $631.3 million. The technical complexity of manufacturing semiconductors and increasingly challenging yield issues remain revenue drivers for the leading manufacturer of process control equipment.

Additionally, delays in EUV adoption are likely to increase yield issues and the demand for better yields, which will be a positive for KLA.

Products generated 78% of total revenue, a decline of 23.0% sequentially and 20.3% year over year. Services revenue comprised the remaining 22%, down 3.0% sequentially and up 2.4% year over year. Services are likely to grow in importance, as the company strives to maintain its large installed base.

As usual, KLA did not provide product-wise and geography-wise details on the call, so they would not be available until the company files its Form 10Q.  

Orders

KLA’s orders were up 95.5% sequentially and 31.0% year over year to $950 million in the last quarter. Logic customers generated the strongest growth in the last quarter, followed by foundry and then memory. March quarter orders are expected to be softer however, as the spurt in logic and foundry spending may be expected to moderate.

KLA’s fortunes are tied to the foundry segment, first because the company is more exposed to this market and second, because its process control equipment is in higher demand at foundries that are always looking to improve efficiencies in order to drive down costs. In the last quarter, KLA benefited from the continued ramp up of 28nm processes, as well as capacity builds at 32nm. As a result, the segment continued to make up the largest chunk of orders (57%) in the last quarter.

The memory segment (16% of total orders) was up 48.9% and 4.8%, respectively from the previous and year-ago quarters, mainly on account of increased technology-driven spending. The NAND side remains the major driver of growth in memory and KLA stated that NAND spending overtook DRAM for the first time in the last quarter.

Logic brought in the remaining 27% of orders, up 139.9% sequentially and 342.2% from the year-ago quarter, driven mostly by a diversified chip manufacturer looking to increase its leading edge logic capacity.

There is considerable lumpiness in KLA’s semiconductor business, since individual units are of high value. However the last quarter’s performance indicates that the market is recovering.

The wafer inspection product line saw orders jumping 235.1% on a sequential basis and 109.7% year over year. Reticle Inspection grew 41.2% sequentially, while declining 34.5% from a year ago. Metrology was up 207.2% sequentially and 44.1% from last year. Solar, storage, HB LED and other products were down 34.8% sequentially and 21.4% from last year.

All except Europe and smaller Asian countries grew orders in the last quarter. Korea and Taiwan saw the biggest increases, followed by Japan and the U.S. Overall, the order contribution by geography was as follows—The U.S. 19%, Europe 2%, Taiwan 39%, Korea 28%, Japan 9% and Other Asia/Pacific 3%. The relatively higher concentration in Asia is due to the presence of a larger number of foundries and memory manufacturers in the region.

The six-month backlog at quarter-end was $1.4 billion, up 27.3% sequentially and flat year over year.

Margins

KLA’s gross margin expanded just 31 bps sequentially to 58.3%, as the lower revenue were almost totally offset by lower inventory-related charges. It also shrunk 177 bps from the year-ago quarter. Incremental gross margins dropped to just below the targeted 60-70%.

Operating expenses of $206.5 million were up 4.4% from the previous quarter’s $197.8 million. The operating margin was 26.2%, down 700 bps sequentially and 997 bps year over year. While except cost of sales increased sequentially as a percentage of sales, although the increase in ER&D was the most significant. ER&D was also the most significant contributor to the decline from the year-ago quarter (57%), followed by SG&A and then cost of sales.

Excluding the impact of acquisition-related expenses and restructuring costs on a tax-adjusted basis, as well as some discrete tax items, the pro forma net income came in at $121.9 million, or 19.0% of sales, compared to $198.1 million, or 24.9% in the previous quarter and $187.2 million, or 24.4% of sales in the year-ago quarter.

Including the special items, the GAAP net income was $110.8 million ($0.66 per share) compared to income of $191.9 million ($1.13 per share) in the September 2011 quarter and $185.5 million ($1.09 per share) in the December quarter of last year.

Balance Sheet

Inventories were up 4.4%, with inventory turns going down slightly from 2.2 X to 1.7X. Days sales outstanding (DSOs) went up from 53 to around 77. KLA ended with cash and short term investments of $2.18 billion, up $76.5 million during the quarter. The company generated $187.2 million of cash from operations, spending $14.9 million on capital expenses, $63.6 million on share repurchases and $58.1 million on dividends during the quarter.

Guidance

For the second quarter of fiscal 2012, KLA expects orders to be down 13.2% to up 2.6%, revenue of between $770 million and $830 million, opex to be flat sequentially, other income/expense to be a net expense of $10 million, tax rate 26% and a share count of 169 million, resulting in a non-GAAP EPS of between $1.00-1.18.

In Summary

KLA reported a good quarter, although the guidance was not very exciting. Management’s optimism is based on the fact that foundry orders appear to be coming back, mainly on account of yield issues at 28nm and the fact that process control equipment is expected to remain an important investment area.  

Additionally, KLA has been recording some wins at NAND manufacturers that have done better than other memory makers this year and are likely to remain stronger. Therefore, although KLA’s position in the segment is below desirable levels, the increasing penetration is a positive.

We are not surprised by the softer order guidance for next quarter, since we cannot ignore the excess capacity that remains at foundries. We think that significant growth in KLA’s business is not likely until semiconductor demand gains momentum, driving foundries to capacity expansion. This could happen in the back half of calendar 2012 if economic pressures alleviate.

While the non-semi business could have provided something of a buffer in these trying times, there are issues in the solar market as well, which makes this difficult. Additionally, the segment still generates less than 10% of its orders, so the impact is relatively small.

There have been limited changes in estimates over the last month or so and expectations for fiscal 2013 remain higher than those for fiscal 2012, indicating improving trends.

KLA shares currently carry a Zacks Rank of #2, implying a short-term Buy recommendation. We are also positive about other equipment providers, such as Novellus Systems (NVLS), although we are slightly less positive about Applied Materials (AMAT) given its exposure to solar.

 
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T. Rowe Price Profit Soars – Analyst Blog

T. Rowe Price Group Inc.’s (TROW) fourth-quarter 2011 net income of 73 cents per share were above the Zacks Consensus Estimate by 4 cents. Moreover, earnings compared favorably to 72 cents reported in the prior-year quarter.

Higher-than-expected top-line growth, partially offset by higher operating expenses, cumulated in improved performance. Moreover, increased assets under management (AUM) were also positive for the quarter. Yet, net income available to common shareholders decreased 1.7% to $187.5 million from $190.8 million in the year-ago quarter.

For full year, net income available to common shareholders was $769.7 million or $2.92 per share, up from $669.4 million or $2.53 per share in the prior year. Moreover, full year earnings per share were also above the Zacks Consensus Estimate by 3 cents.

Performance in Detail

Net revenue increased 3.7% to $671.6 million from $647.5 million in the year-ago period. The upsurge was primarily due to an increase in investment advisory fees that jumped 1.8% year over year (y/y) to $570.5 million. Moreover, net revenue compared favorably with the Zacks Consensus Estimate of $660.0 million.

Administrative fees also increased 8.2% year over year to $80.3 million. Distribution and servicing fees climbed 66.9% y/y to $20.2 million.

For full year, net revenue was $2.7 billion, up 12.5% y/y. Moreover, revenue were modestly in line with the Zacks Consensus Estimate.

Investment advisory revenues earned from the T. Rowe Price mutual funds distributed in the U.S., jumped 2% y/y to $391.2 million in the quarter. Investment advisory revenues earned from other investment portfolios managed by the company increased 0.4% from the year-ago quarter to $179.3 million.

Total operating expenses climbed 3.6% y/y to $378 million in the quarter. The increase was primarily attributable to high distribution and servicing costs (up 67% year over year), depreciation and amortization expense, and compensation and related costs.

As of December 31, 2011, T. Rowe Price employed 5,255 associates, up 4% y/y from 5,052 associates. Slightly higher advertising and promotion expenditures added to higher expenses in the quarter.

Assets Position

Total AUM increased to $489.5 billion as of December 31, 2011, up 7.9% compared with $453.5 billion as of September 30, 2011. Market appreciation and income of $34.9 billion and net cash inflows of $1.1 billion led to increase in AUM at the end of the reported quarter. Moreover, average AUM increased 4.6% y/y to $484.8 million in the fourth quarter of 2011.

T. Rowe Price remains debt-free with substantial liquidity, including cash and mutual fund investment holdings of about $1.7 billion, which supports the company’s ability to continue to invest in the future periods. As of December 31, 2011, the company had $948.4 million in operating cash flows, including $98.7 of stock-based compensation in 2011 compared with $732.8 million as of December 31, 2010.

During the year 2011, the company repurchased 8.7 million shares of its common stock for $479.7 million. Moreover, the firm invested $82.3 million in capitalized technology and facilities. T. Rowe Price is planning capital expenditures for the year 2012 to be approximately $100 million for property and equipment additions.

The closest competitor of T. Rowe price, Virtus Investment Partners Inc. (VRTS) is expected to report its fourth-quarter 2011 earnings on February 1, 2012.

Our Take

T. Rowe Price’s financial stability has the potential to take advantage of the improving economy and benefit from the growth opportunities in the domestic and global AUM. With a debt-free position, higher return on earnings and improving investor sentiment witnessed in 2011 as a whole, we believe fundamentals will continue to remain strong.

Furthermore, relative mutual fund performance was also positive. However, higher operating expenses and stringent regulatory norms could be causes of concern.

T. Rowe Price currently retains its Zacks #2 Rank, which translates to a short-term Buy rating. However, considering the fundamentals, we are maintaining a Neutral” recommendation on the stock.

 
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Should You Have Alternative Investments In Your Portfolio?

So you have discovered the merits of dumping your high-priced money manger and his ineffective mutual funds in favor of low-cost index funds allocated across stocks, bonds, and cash.

You have diversified your portfolio to reduce risk and increase your likelihood of a good retirement. Congratulations! By focusing your attention on what matters most—finding the right mix of stocks, bonds, and cash—and keeping your allocation on target through steel-veined rebalancing, you have elevated your portfolio into the top 10 percent and are enjoying the company of the top endowments and of wealthy families. You are no longer the stock market’s dog taking its daily beating.

As you have grown in sophistication, you have also become aware that the big players use alternative investment vehicles—hedge funds, private equity deals, absolute return strategies, and venture capital—to further increase diversification and elevate returns.

Take a look at Yale’s endowment manager David Swensen. One of the leading evangelists for low-cost index investing across stocks, bonds, and cash, Swensen follows a different path for the endowment he manages. In his portfolio you will find a hefty allocation to alternatives, namely 50.6 percent across absolute return strategies and private equity as of 2010.

Why does Swensen make so much room for alternative investments? There are several reasons. One such rationale is that alternatives provide real diversification within the university’s portfolio. While equities from the United States, foreign developed countries, and emerging markets sometimes seem to move in lockstep, alternative investments are more likely to zig when corporate stocks zag. That accomplishes a big goal of diversification. Another reason is something called risk-adjusted returns. For just a little more risk, Yale is able to increase its returns over a ten-year period by approximately 4 percent annually. That’s a bet they want to take.

So to truly follow the endowment model, you would think that alternatives should be represented in your portfolio as well. Additionally, in recent years, a new class of mutual funds has emerged, giving regular investors access to alternative deals that they were once locked out of. Is it time for you to board the alternative investment train?

Probably not. Here are four reasons the average guy should be cautious:

Qualification. The SEC has set rules about who can participate in alternative investments. Because alternative vehicles do not fall under the same SEC regulations and oversight as public stocks, and because there is a history of volatility and increased risk, the rules now state that to participate, you must be an accredited investor who has earned $200,000 annually for the past three years or who has a net worth, excluding home equity, of $1 million or more. The assumption is that a person with those assets is more sophisticated and more able to assess and survive the risks involved. And if you are not bringing a minimum of $500,000 to the game, there is no need to apply. Most funds set that amount as the minim hurdle for participation. Alternative investment mutual funds, however, have removed qualification barriers by allowing average investors the opportunity to pool their funds and participate.

Quality. Access is one thing, but quality is the bigger issue when it comes to alternatives. It doesn’t help to gain access to alternatives if you’re buying into the leftovers and walking dead, as the VC world calls them. Access to the best managers and funds is highly sought after, and a serious competition rages between endowments and wealth managers commanding billions of dollars of assets. Your little alternative mutual fund is the yapping Chihuahua that is fighting for his chance at the dog bowl while the pit bulls ravish the meal.

Fees. Even if you do luck out and find your way into a quality alternative fund, beware of the fee structure. While the institutional investors are able to knock down fees, the average Joe can expect to pay a 2 percent annual management fee and another 20 percent on all profits before he gets money out. Under the mutual fund model, add another onerous layer of management fees, usually around 2 percent annually, plus marketing fees and sometimes additional loads. Your underlying investments better include the next Facebook if you expect to see stellar returns.

Visibility and transparency. Finally, there is the issue of the visibility of your investments and the transparency of management. If David Swensen calls up ACME Enterprises to get an update on his European private equity holdings, his call will be taken and the discussion will be deep and wide. If you call your mutual fund provider to find out about how your investment in XZY Ventures is going, you will be put on hold until you go away. You have no shot of really understanding anything that is happening with your investment dollars short of what the mutual fund managers provide in their polished quarterly reports. And if the house starts to burn, count on being the last dog out the doggie door.

Big, smart money has ways of accessing alternative deals the average guy has a hard time understanding, let alone selecting. Alternative investment mutual funds can provide access to some high-priced leftovers. Smart access to alternatives comes in the form of index funds pointed at real estate through U.S. and international REITs and commodities in the form of U.S. and global energy and precious metals investments. These alternatives technically fall outside the typical stock/bond mix and provide real diversification via low-cost and reasonably transparent investments. Include these alternatives in your portfolio mix. If you try to play in the alternative world with the big dogs, you’re likely to end up with leftover dog meat that will leave you growling.

 

NVS Beats by a Penny, View Guarded – Analyst Blog

Swiss pharmaceutical giant Novartis (NVS) reported earnings per share of $1.23 for the fourth quarter of 2011, marginally beating the Zacks Consensus Estimate of $1.22. Earnings were also above the prior-year figure of $1.14 per share. An unimpressive top-line was countered by higher adjusted operating income resulting in the nominal beat.

Reported earnings were only $0.49, down 48% year over year, due to huge exceptional and one-time charges of $1.5 billion in the quarter. The exceptional charges related primarily to the Tekturna/Rasilez sales decline, discontinuation of some pipeline candidates and temporary suspension of production at the Lincoln, Nebraska facility.

Fourth quarter revenues of $14.8 billion fell short of the Zacks Consensus Estimate of $15.0 billion mainly due to poor performance of the Sandoz and Consumer Health segments. Foreign exchange further affected fourth quarter revenue by 1%. Revenues were however ahead of $14.2 billion recorded in the year-ago period.

For the full year 2011, Novartis announced earnings of $5.57 per share, slightly below the Zacks Consensus Estimate of $5.63. Revenues were $58.6 billion, minimally below the Zacks Consensus Estimate of $58.8 billion. Revenues, however, grew 16% and earnings were up 8% over the prior year.

The Fourth Quarter in Detail

Novartis operates in five segments. The financial details from these segments are discussed below.

Pharmaceutical division sales were up 4% to $8.3 billion in the quarter. Growth from volume expansion and new product launches (accounting for 30% of Pharmaceutical sales) was partly offset by price erosion, the negative impact of patent expirations and product divestments.

Oncology sales growth of 1% was led by some established products like Gleevec (up 8% to $1.2 billion) and Sandostatin (up 7% to $374 million) as well as new products like Tasigna (up 64% to $207 million) and Afinitor (up 66% to $133 million). Femara sales (down 62% to $134 million) were negatively impacted by generic erosion.

The Cardiovascular and Metabolism franchise recorded a sales decline of 8% due to weakness in Diovan (down 16% to $1.3 billion) and Tekturna (marketed as Rasilez outside US)(down 19% to $108 million). Novartis’ blockbuster hypertension drug Diovan loses patent expiration in the US in September 2012 and is already facing generic erosion in the European Union (EU). Diovan will greatly weigh upon Novartis’ top line once its patent expires. Tekturna sales were hit by the failure of the ALTITUDE study. In December 2011 Novartis announced that it has stopped the ALTITUDE study which was investigating Tekturna/ Rasilez in a high-risk population of patients with type-II diabetes and renal impairment following recommendation from a Data Monitoring Committee. As a result, Novartis is recommending against use of Rasilez/Tekturna-based products in combination with an angiotensin converting enzyme (ACE) inhibitor or angiotensin receptor blocker (ARB) in hypertensive patients with diabetes. It has ceased promotion of any such combination medicines.

The Neuroscience and Ophthalmics franchise experienced a 33% increase led by eye drug Lucentis (up 40% to $550 million) and new multiple sclerosis drug Gilenya, which recorded revenues of $203 million.  The respiratory franchise recorded a growth of 20% driven by Onbrez Breezhaler (up 88% to $32 million) and Xolair (up 27% to $130 million).

Last year, Novartis completed the merger with Alcon following which Alcon became the second largest division within Novartis. The Alcon Division recorded revenue of $2.4 billion in the quarter, representing a pro-forma growth of 6% driven by strong growth of ophthalmic pharmaceuticals and surgical products.

Sandoz, Novartis’ generic arm, recorded a sales decline of 5% to $2.3 billion as growth from volume expansion was offset by price erosion. Moreover, the generic version of Sanofi’s (SNY) Lovenox was down year over year, which significantly impacted Sandoz’ US retail generics and biosimilars growth. Softer pricing resulting from increased competition affected generic Lovenox sales. The volume growth was driven by strong performances in France, Spain, Russia, Italy and Japan as well as from biosimilars.

Sales at the Vaccines and Diagnostics division grew 86% over the year-ago quarter to $671 million. Strong performance of meningococcal vaccines (particularly Menveo), brisk diagnostics sales and resolution of shipment delays (which affected prior quarters) drove the upsurge. One time revenue from pre-pandemic flu vaccine also boosted sales in the quarter.

Consumer Health sales were down 7% over the prior year to $1.1 billion due to weakness in sales of over-the-counter (OTC) products. In early January 2012, Novartis issued a voluntary recall for certain OTC products in the United States, following the temporary suspension of operations from its Lincoln, Nebraska facility which affected OTC sales. The Animal Health division however did well in the quarter.

2012 Guidance

Novartis expects 2012 total constant currency sales to be in line with 2011 levels. The newly launched products are expected to make up for Diovan generic erosion, decline in Tekturna/Rasilez sales, price erosion and ongoing issues at the Lincoln plant. The Lincoln plant would resume shipments in mid-2012. Management expects to lose about $1.2 billion in Diovan sales in 2012. This combined with the Femara patent expiration will affect Pharmaceuticals revenue by about $2.6 billion. Moreover, Tekturna/ Rasilez sales are forecast to be reduced to half of what they are in 2011.

Novartis estimates a year-over-year decline in core operating margins (in constant currencies) in 2012 due to pricing pressure, generic competition and the suspension of operations at Lincoln.

Our Recommendation

Currently, we have a Neutral recommendation on Novartis. The company carries a Zacks #3 Rank (“Hold” rating) in the short run. Though pleased with Novartis’ wide range of products and its business diversity, we prefer to remain on the sidelines in the long term due to the imminent patent cliff faced by the company.

 
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NextEra Ahead by a Penny – Analyst Blog

NextEra Energy Inc. (NEE) announced fourth-quarter 2011 operating earnings of 93 cents per share compared with 80 cents per share in the year-ago quarter. The results of the company beat the Zacks Consensus Estimate by a penny.

NextEra Energy recorded GAAP earnings for the fourth quarter of 2010 of $1.59 per share compared with 63 cents per share in the year-ago period. The difference of 66 cents between operating and GAAP earnings, during the fourth quarter, was due to mark-to-market effects of non-qualifying hedges which relate to Energy Resources, the competitive energy business of NextEra Energy.

Operating earnings for 2011 were $4.39 per share compared with $4.30 per share reported in 2010. The results of the company were in line with the Zacks Consensus Estimate.

Total Revenue

NextEra Energy’s total operating revenue for fourth-quarter 2011 was $3.86 billion, up 13.2% from $3.41 billion reported in the year-ago period mainly due to a good performance from Energy Resources.

Reported quarter revenue also surpassed the Zacks Consensus Estimate of $3.76 billion.

NextEra Energy’s total operating revenue for 2011 was $15.34 billion versus $15.31 billion reported in the year-ago period reflecting a growth of 0.2%. The fiscal results were driven by positive contribution from NextEra Energy Resources and Corporate & Others.

Fiscal year 2011 revenue was marginally lower than the Zacks Consensus Estimate of $15.48 billion.

Segment Results

Florida Power & Light: Total segment revenue for fourth-quarter 2011 was $2.41 billion versus $2.46 billion in fourth-quarter 2010, reflecting a decline of 1.9%. Total energy sales during the current quarter were 23,806 million kilowatt/hr (KWh) compared with 24,487 million KWh in fourth-quarter 2010.

Despite a year-over-year growth in customer base by 25,000 in the reported quarter and increase in the average unit sales price at this business segment, revenue contribution failed to measure up because of an overall reduction in the volume of energy sales.

Total segment revenue for 2011 was $10.6 billion versus $10.48 billion in 2010, reflecting a growth of 1.2%. The fiscal growth was driven by the positive contribution from the investment made by the company in clean and efficient power generation.

Energy Resources: Total revenue for fourth-quarter 2011 was $1,392 million versus $897 million in fourth-quarter 2010, reflecting a significant growth of 55.2%. The fourth quarter results were driven by higher contribution from the wind generation assets compared to the prior-year quarter.

Total revenue for 2011 was $4.5 billion versus $4.63 billion in 2010, reflecting a decline of 2.9%. The fiscal results dipped due to extended unplanned outages as well as lower hedge prices at Seabrook Station and lower contribution from the customer supply and proprietary trading businesses. The downside was marginally offset by higher wind generation from existing wind assets and better contributions from the gas infrastructure business.

Corporate and Other: Total revenue for fourth-quarter 2011 was $58 million versus $55 million in fourth-quarter 2010, increasing 5.4%.

Total revenue for 2011 was $226 million versus $196 million in 2010, reflecting a growth of 15.3%.

Operational Update

Total operating expenses for the quarter eased by 7.2% year over year. The reduction in operating expenses was primarily owing to a 4.4% year-over-year decline in input costs.

Interest expenses for the quarter increased by 5.7% to $260 million from $246 million in the year-ago quarter, sparked off by a higher debt level.

Financial Update

The company ended the year with a strong cash balance. Cash and cash equivalents as of December 31, 2010, were $377 million versus $302 million as of December 31, 2010, reflecting a year-over-year growth of 24.8%.

Long-term debt of the company as of December 31, 2011, deteriorated to $20 billion versus $18.0 billion as of December 31, 2010.

The company continues to be a strong cash flow generator. Cash from operating activities at the end of fiscal 2011 was $4.07 billion versus $3.83 billion provided at the end of fiscal 2010.

Outlook

NextEra Energy expects 2012 adjusted earnings guidance in the range of $4.35 to $4.65 per share. NextEra estimates earnings growth at an average rate of 5% to 7% from 2011 through 2014, culminating in 2014 earnings in the range of $5.05 to 5.65 per share.

Our View

Overall, it has been a nice year for the company. We appreciate the initiatives employed by NextEra Energy for furthering renewable energy generation. The company added 380 megawatt (MW) of wind power in its portfolio and is working towards adding more in 2012.

Besides the wind energy assets the company has been developing its solar energy capabilities. The company will be investing heavily in its solar projects in the next few years and already has 940 MW of solar generation under contract which is expected to enter into service by 2016.

NextEra Energy currently retains a Zacks #3 Rank, which translates into a short-term Hold rating and coincides with our long-term Neutral recommendation on the stock.

Based in Juno Beach, Florida, NextEra Energy Inc., through its subsidiaries, engages in the generation, transmission, distribution and sale of electric energy in Florida. The company mainly competes with TECO Energy, Inc. (TE) and Southern Company (SO).

 
NEXTERA ENERGY (NEE): Free Stock Analysis Report
 
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