AbbVie Pushes Higher Following Third Quarter Earnings Report

On Friday before the opening bell, AbbVie (ABBV) reported a top and bottom line beat with its third quarter earnings report. Revenues of $8.479 billion (+3% YoY reported, +3.5% operational) exceeded consensus of $8.377 billion, and adjusted earnings per share of $2.33 (+9% YoY) beat consensus of $2.30. Adjusted gross margins were slightly lower than expected as AbbVie's 82.0% figure was slightly below expectations of 82.78%.

"Strong performance from our Immunology and Hematologic Oncology portfolios led our growth this quarter," CEO Richard Gonzalez said in the company's press release. 

"We are also making excellent progress with several key strategic priorities, including the recent launch of our two new immunology therapies - Rinvoq and Skyrizi - both of which are off to an impressive start, as well as continued progress toward the completion of our planned acquisition of Allergan."

"Based on the continued momentum of our portfolio, we are once again raising our full year 2019 EPS guidance range and increasing our dividend."

Global Humira net revenues were $4.936 billion (-3.7% YoY on a reported basis, -3.2% YoY operationally), exceeding expectations of $4.885 billion, driven by strong volume growth across all three segment. In the U.S., sales increased 9.6% YoY to $3.887 billion, while international sales fell 33.5% YoY on a reported basis, or 31.8% YoY operationally, to $1.049 billion due to biosimilar competition that is consistent with expectations. We do want to call out that while the main driver behind ABBV's difficult year to date performance (but not since our initiation here) has been uneasiness about the future of Humira's international sales, this quarter marked the third quarter in a row were international sales were greater than consensus estimates. Driving the better than expected results is overall erosion slightly less than anticipated, as management previously guided to about 30% while the actual number has been closer to 28%.

From immunology's recent launches, Skyrizi net revenues were $91 million against consensus of $86 million, and Rinvoq revenues of $14 million missed consensus of $15 million.

In the hematologic oncology portfolio, global net revenues were $1.478 billion (+38.3% YoY on a reported basis or +38.5% YoY operationally). Global Imbruvica net revenues were $1.257 billion (+29.3% YoY), a better than expected result against the $1.192 billion consensus. In the U.S., Imbruvica net revenues were $1.042 billion, while international sales were $215 million. Global Venclexta net revenues were $221 million vs. $198 million consensus.

Global HCV net revenues were $698 million (-19% YoY on a reported basis or -18.6% YoY operationally), missing expectations of $755 million.

On the Allergan (AGN) deal that will help diversify the business and increase cash flow, management said the company is on track for a first quarter 2020 close and integration planning is well underway. During the Q&A section of the call, the durability of key Allergan product Botox was the focus of one question. CEO Gonzalez downplayed the impact of potential competition due to the strong brand equity of the product.

On guidance, management now expects full year 2019 adjusted earnings per share to be in the range of $8.90 to $8.92 (consensus $8.91), up from a previous range of $8.82 to $8.92. For the fourth quarter, management expects adjusted earnings per share of $2.17 to $2.19, relatively in-line with current estimates of $2.19., with operational sales growth approaching 5%.

On the dividend, AbbVie announced today that its board of directors declared an increase in the company's quarterly dividend to $1.18 per share from $1.07, beginning with the dividend payable on February 14, 2020. Based on the new dividend, we note the yield would jump to about 5.85% from 5.38% as of yesterdays close. This yield may suggest the dividend is unsustainable, but management does not see it that way and we think they would not have increased it by a double digit percent if they thought its future was at risk. What management sees is "significant earnings and cash flows that the combination of AbbVie and Allergan will generate allow us to support a strong and growing dividend and rapidly reduce debt." To that point, management expects the combined company to have a net debt to EBITDA ratio of 2.5x by the end of 2021. As we previously wrote in our Alert here, we believe the dividend is safe because the new company is expected to be the third biggest cash generator in the industry.

Overall, we think this was a pretty solid beat and raise quarter. What pleased us most were the better than expected results out of Humira, AbbVie's key blockbuster drug, as well as the double digit increase to the dividend. On the latter, this move should reinforce confidence in that the fat dividend can be paid, but also that debt can be paid off down the road.

Our current view of the stock is unchanged: We want to buy this stock on any weakness because we think the price to earnings multiple is too low and the dividend yield is too attractive. Shares are up nicely this morning, likely reflecting this sentiment.

We reiterate our ONE rating.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long ABBV.