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AstraZeneca dips on earnings miss

A slower fourth quarter saw the pharma giant fall short of analysts’ expectations with warnings of the impact of coronavirus also spooking the market
February 14, 2020

While AstraZeneca (AZN) exceeded expectations in its third quarter, slower momentum at the end of the year put a dampener on the full-year picture. Product sales increased by 9 per cent on a constant currency increase to $6.3bn (£4.85bn) in the three months to 31 December, half the rate seen in the previous quarter. Flat adjusted earnings per share of 350¢ in 2019 came in below analyst consensus of 360¢.

IC TIP: Buy at 7,550p

Revenue growth for the full year was driven by higher uptake of new drugs and a strong performance in emerging markets. Sales of new medicines jumped by almost two-thirds to $9.9bn with turnover from emerging markets soaring by 84 per cent. New medicines now represent 42 per cent of total product sales, up from 30 per cent in 2018. China is the group’s fastest growing and second largest region and sales there jumped 35 per cent to $4.9bn. Chinese approval for use of Lynparza as a first-line treatment for ovarian cancer should provide a further boost in 2020.

Oncology treatments are a key growth area within pharmaceuticals and AstraZeneca’s portfolio of cancer drugs now accounts for more than a third of total product sales. Oncology revenue jumped 44 per cent to $8.7bn driven by higher sales of new therapies. This includes top-selling drug Tagrisso which is used to treat lung cancer – sales surged by almost three-quarters in 2019 to $3.2bn. Regulatory approvals for leukaemia drug Calquence and breast cancer treatment Enhertu are expected to add to the top line this year.

Continuing to invest in its pipeline, research and development spending hit $6.1bn in 2019. Together with investment to expand in China and new drug launches, higher expenses pushed operating profit down 16 per cent to $2.9bn.

With a high degree of exposure to China, AstraZeneca is assuming an unfavourable impact from the coronavirus outbreak in its 2020 guidance, although chief executive Pascal Soriot says they have seen “relatively limited disruption” so far. While Bloomberg consensus for 2020 places adjusted EPS at 424¢ – a 21 per cent year-on-year improvement – the group is projecting a mid to high-teens percentage increase.

ASTRAZENECA (AZN)   
ORD PRICE:7,550pMARKET VALUE:£ 99.1bn
TOUCH:7,550-7,559p12-MONTH HIGH:7,948pLOW: 5,626p
DIVIDEND YIELD:2.9%PE RATIO:95
NET ASSET VALUE:1,000p*NET DEBT:82%**
Year to 31 DecTurnover ($bn)Pre-tax profit ($bn)Earnings per share (¢)Dividend † per share (p)
201524.71.2098189
201623.03.10223219
201722.53.55277203
201822.11.99170215
201924.41.55103218
% change+10-22-39+2
Ex-div:27 Feb   
Payment:30 Mar   
£1=$1.30, *Includes intangible assets of $32.5bn or 2,477¢ a share, **Includes £675m in lease liabilities. † Declared in US$ and maintained at 280¢ since 2016