Valeant Pharmaceuticals Inc. (VRX, Financial) reported a net loss of $515 million during fourth-quarter 2016Â based on generally accepted accounting principles and an adjusted EBITDA of $1.05 billion. For full-year 2016, the company reported a GAAP net loss of $2.4 billion, which translates to a loss per share of approximately $6.94. These values suggest that Valeant has a weakening financial outlook for 2017.
Brief summary of earnings report
Although CEO Joseph Papa praised his teams for their commitment to creating “the new Valeant,” the company still has a poor short-term outlook. Fourth-quarter 2016 total revenues dropped 13%, primarily driven by lower product sales from existing business and negative impact of foreign currency exchange. For the entire year, Valeant reported total revenues of $9.674 billion, approximately $800 million lower than 2015 total revenues.
While the company reported flat revenues in the Bausch + Lomb/International segment, Valeant reported shortfalls in revenue in the other two segments: Branded Rx and U.S. Diversified Products. During fourth-quarter 2016, Branded Rx revenues declined approximately $170 million compared to fourth-quarter 2015 revenues due to lower Salix and Dermatology revenues. U.S. Diversified Products revenues dropped $168 million as Valeant reported lower volumes in its neurology business. Figure 1 summarizes Valeant’s segment revenue breakdown for full-year 2016.
Figure 1
Valeant also reported higher operating, SG&A and R&D expenses for full-year 2016 compared to full-year 2015 expense figures. Cost of goods sold increased 2% year over year while the other two expense categories both increased 1% year over year. SG&A expenses increased primarily due to acquisition and severance payments and R&D expenses increased as the company focuses on maximizing its core Branded Rx and Bausch + Lomb segments.
Company has poor financial outlook for 2017
The drug manufacturing company currently has a financial strength rank of 3, implying moderate financial distress. Valeant has poor Piotroski F and Altman Z scores, the latter suggesting potential bankruptcy by 2019. The company had volatile F-scores since 2006 and Z-scores languishing below 2.00 since 2011.
Valeant has negative profit margins and returns despite having a profitability rank of 7. The company’s operating margin of -5.35% and return on equity of -41.48% underperform 79% and 89% of global drug manufacturers.
As the company has a declining financial outlook, several gurus axed portions of their Valeant position during fourth-quarter 2016. Steven Cohen (Trades, Portfolio) and Ruane Cunniff (Trades, Portfolio) eliminated Valeant altogether, selling approximately 4.62 million shares and 275,963 shares respectively. As mentioned in a previous article, Bill Ackman (Trades, Portfolio) sold about 3.477 million shares of Valeant.
Valeant’s stock price currently trades around $15.41 per share, a 16% nosedive from its fourth-quarter 2016 average price of $18.34 per share.
Disclosure: No position in Valeant currently and not expected to take a position in the near future.
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