Pfizer: No Pill for Expiring Patents
On Tuesday, pharmaceutical giant Pfizer (annual cost savings) is expected to say expiring patents caused earnings to fall to 59 cents per share from 62 cents per share a year ago. Key drugs currently facing plummeting sales due to generic competition include Effexor, an antidepressant; Protonix, an acid-reflux drug; and Aricept, an Alzheimer’s disease treatment. Lipitor, which has already lost patent exclusivity in international markets, will lose U.S. exclusivity in November. Lipitor is Pfizer’s top selling drug and currently generates over $5 billion in annual US sales.
As the company works new drugs through its experimental pipeline, it should benefit from cost synergies after its acquisitions of Wyeth and King Pharmaceuticals. It has also been reported that Pfizer is looking to sell its infant formula business and spinoff its animal health business to focus its operations. Pfizer is also returning wealth to shareholders in the form of $5 billion to $7 billion worth of share repurchases.
For MasterCard, a Quarter Like This in a Slow-Mo Economy: Priceless
MasterCard (MA) is scheduled to announce second-quarter earnings on Wednesday. Reports from competitors Visa, American Express, and Capital One suggest MasterCard’s earnings will benefit from Americans’ increasing reliance on credit and debit cards over checks and cash. Earnings are expected to rise 21% year-over-year to $4.22 per share. Per-share earnings will also be bolstered by the company’s share repurchase program, which was increased by $1 billion in April. Although weak economic conditions are typically unfavorable for credit card usage activity, recent Federal Reserve data showed credit card usage is on the rise. That suggests consumers in tight positions are paying bills with credit. While increasing consumer debt levels may be disconcerting, this is good news for credit card company earnings in the short run.
July Retail Sales: A preview of Q3?
A key early read on consumer spending activity will come on Thursday when major U.S. retail chains report July sales levels. This will arrive on the heels of last Friday’s disappointing Q2 GDP report and consumer sentiment reading. In addition to weak labor market conditions and high food and gas prices, some economists are now attributing the weak sentiment readings to the squabbling over the federal debt limit. We will see if all the squabbling in Washington is causing consumers to reduce purchases or shift purchases to cheaper goods. Companies expected to announce monthly sales on Thursday include Saks (SKS), JC Penney, Costco (COST), Target (TGT), and Limited Brands (LTD), the parent company of Victoria’s Secret.
Kraft Foods: Expect a Decline―and Insights about Commodities
When food and beverage giant Kraft Foods (KFT) announces quarterly results on Thursday, economists and investors will pay close attention to what management has to say about cost pressures from raw materials. Like most companies facing volatile commodity prices, Kraft is passing higher costs on to consumers through higher prices. However, if prices become too high, consumers may be forced to trade down to generic labels. Analysts expect Kraft earnings to decline to 58 cents per share, down from 60 cents per share a year ago. Investors have high hopes for the 2010 acquisition of Cadbury, which is expected to generate around $750 million in annual cost savings for the combined company by 2013.