What Lies In Store For Glaxo (GSK) This Earnings Season?

GlaxoSmithKline plc (NYSE:GSK) is scheduled to report second-quarter 2017 results on Jul 26 before market opens. Last quarter, the company delivered in-line earnings.

Glaxo’s shares are up 10.1% this year so far, underperforming the 11.9% increase witnessed by the Zacks classified Large-Cap Pharma industry.

Glaxo’s performance has been pretty good so far, with the company’s earnings beating expectations thrice in the four trailing quarters while meeting estimates in the remaining quarter. Overall, the company has delivered an average positive earnings surprise of 12.28%.

Let’s see how things are shaping up for this quarter.

Factors to Consider

All of its business segments – Pharmaceuticals, Vaccines and Consumer Healthcare – are expected to do well in the to-be reported quarter.

Glaxo’s Pharmaceuticals segment is expected to be driven by strong sales of new HIV products, Tivicay and Triumeq. Sales of newly launched respiratory drugs, the Ellipta products and Nucala are expected to offset the declines in Seretide, Advair and Avodart. Many of Glaxo’s key drugs like Lovaza and Avodart are facing declining sales due to generic competition. Importantly, pricing dynamics and competitive pressure are hurting sales of its top-selling drug Advair in the US while generic competition is hurting Advair sales in Europe.

At the first quarter call, the company had mentioned a lot of uncertainty surrounding the timing of Advair generic launch. However, Mylan N.V.’s (NASDAQ:MYL) efforts to bring a generic version for Advair in the market suffered a blow as the FDA issued a complete response letter to its abbreviated new drug application (ANDA) in Apr 2017, thereby delaying the entry of the generic. Hikma Pharmaceuticals’ generic version of Advair was also denied approval by the FDA in May 2017. A generic version of Advair is therefore not likely to be approved this year.

The Vaccines segment will continue to benefit from the uptake of meningitis vaccines, Bexsero and Menveo (acquired from Novartis).

Importantly, growth of the Consumer Healthcare segment has slowed down. At the first quarter conference call, management had mentioned that the impact of general sales tax and continued slowdown in the nutrition category in India, challenging economic conditions in some other international markets and the Nigerian beverage business divestment are expected to hurt Consumer Healthcare segment sales this year. These factors might impact second-quarter results.

However, cost savings from restructuring and continued efficiencies are likely to boost operating profits.

Earnings Whispers

Our proven model does not conclusively show that Glaxo is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: Its Earnings ESP is -1.45% as the Most Accurate estimate stands at 68 cents while the Zacks Consensus Estimate is pegged higher at 69 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Glaxo’s Zacks Rank #2 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings beat.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stock to Consider

A couple of stocks in the large cap pharmaceuticals sector that also have a positive Earnings ESP and a favorable Zacks Rank are:

Novo Nordisk (CO:NOVOb) A/S (NYSE:NVO) , scheduled to release results on Aug 9, has an Earnings ESP of +7.14% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Pfizer, Inc. (NYSE:PFE) has an Earnings ESP of +1.54% and a Zacks Rank #3. The company is scheduled to release results on Aug 1.

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