It's a foreign pharmaceutical company -- a selection of Motley Fool Global Gains even -- but Novartis' year-over-year comparisons are being hurt just like American Pfizer (NYSE: PFE) and Merck (NYSE: MRK)
because Novartis reports in U.S. dollars. Sales were up just 3% in the
third quarter, but would have been up a nice solid 7% if currency
exchange rates had stayed the same.
The increase was led by pharmaceuticals, which increased 11%
excluding exchange rates. Vaccines and diagnostics are headed in the
opposite direction, down 16% at constant currencies, but that'll change
next quarter
Swine flu vaccines are expected to contribute $400 million to $700
million in the fourth quarter, which could more than double what the
division brought in this quarter. In the large scheme of things,
though, Novartis won't benefit that much. That kind of one-time
increase would be a lot of money for a smaller drugmaker like Onyx Pharmaceuticals (Nasdaq: ONXX) or even Gilead Sciences (Nasdaq: GILD),
but Novartis is on pace to exceed $41 billion in sales this year. The
additional sales aren't exactly going to be a huge windfall, especially
since the push to get the vaccine out the door required the company to
bring in about 300 people from other divisions, which could hamper
sales elsewhere.
Since pharmaceuticals have higher margins and grew so well,
operating income was up 13% year over year. Unfortunately, that's where
the good news ends -- for now. Interest expenses increased dramatically
as Novartis had to increase its debt to pay for its acquisition of shares of Alcon (NYSE: ACL) from Nestle and potentially buy the rest. The bottom line didn't look as healthy with a paltry 1% increase in net income.
But look a little closer and you'll see that Novartis had to carry
through large charges by companies it partially owns, Roche and Alcon,
which ate up a lot of the increase in operating income. If you back out
those charges, net income would have been up 8.4%.
Pretty healthy indeed.
© 2009 UCLICK, L.L.C.
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