Novartis (NYSE: NVS) has lots of moving
parts, making it tricky to analyze, but it looks to me like
the overall picture is pretty healthy.
It's a foreign pharmaceutical company -- a selection of
the
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
acquisitionof 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 though 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.
Investing internationally can be a
good hedge against a doomed dollar, writes Tim
Hanson.
This article was originally published as
Swine Flu Doesn't Need to Save Novartison
Fool.com
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