01—Abstract
Summary
Summary of the 10-K filed February 22, 2018. Cited figures are marked; the original filing is the authoritative source.
Pfizer's 2017 Form 10-K (filed February 22, 2018) reports revenues of $52.5 billiona, down 1% from 2016 on an operational decline of less than 1% and a $259 million unfavorable foreign exchange impact.
Reported diluted EPS more than doubled to $3.52b, but this is inflated by a $10.7 billion net tax benefit from the Tax Cuts and Jobs Act; non-GAAP Adjusted diluted EPS rose 11% to $2.65. Operating cash flow grew 4% to $16.5 billion. The company is organized into two segments: Pfizer Innovative Health (about $31.4 billion, up 8%) and Pfizer Essential Health (about $21.1 billion, down 11%, partly because the HIS infusion business was sold in February 2017).
The key investor themes are patent cliffs and growth replenishment. Products with more than $1 billionc in revenue made up 46% of 2017 revenue, and management expects a $2.0 billion revenue headwind in 2018 from generic and biosimilar competition, including Lyrica and Viagra in the U.S. Growth is coming from Ibrance, Eliquis, Xeljanz and Xtandi, partly acquired through Medivation (about $14.3 billion) and Anacor. The company also announced a strategic review of its Consumer Healthcare business, with a decision expected in 2018, and it faces ongoing regulatory and litigation issues, including a cGMP warning letter at the McPherson, Kansas facility, which was upgraded to VAI in January 2018, and product shortages at legacy Hospira sites.
For 2018, guidance calls for revenue of $53.5 to $55.5 billiond and Adjusted diluted EPS of $2.90 to $3.00. The company plans to repatriate most of its international cash and has a $15.2 billion TCJA repatriation tax liability payable over eight years through 2026. Its capital return plans include $5.0 billion in 2018 share repurchases and a dividend increase to $0.34 per quarter.
02—Key points
Key Highlights
- Revenue of $52.5B, down 1% (operational decline under 1%; FX -$259M); International revenue is about 50% of the total.
- Reported diluted EPS of $3.52 is inflated by a $10.7B net TCJA tax benefit; Adjusted diluted EPS was $2.65, up 11%.
- Pfizer Innovative Health revenue rose 8% to $31.4B, led by Ibrance (+46%), Eliquis (+47%) and Xeljanz (+45%); Essential Health fell 11% to $21.1B.
- Patent cliff pressure: about $2.0B expected 2018 revenue headwind from generic and biosimilar competition, including Lyrica (U.S. LOE expected December 2018) and Viagra (U.S. generic launch December 2017).
- 2018 guidance: revenue $53.5–55.5B and Adjusted diluted EPS $2.90–3.00; $5.0B in planned 2018 share repurchases.
- Strategic review of Consumer Healthcare (spin-off, sale, or retain) with a decision expected in 2018.
- Regulatory and manufacturing risk: FDA warning letters at the McPherson, Kansas (upgraded to VAI January 2018) and St. Louis facilities, plus Puerto Rico hurricane impacts ($195M in 2017 costs).
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Pfizer Inc kept $0.41.
- Revenue$52.55B100.0%
- Cost of revenue−$11.24B21.4%
- Gross profit$41.31B78.6%
- Operating costs−$20.00B38.1%
- Operating income$21.31B40.5%
- Interest, other & tax$2.0M0.0%
- Net income$21.31B40.6%
Where FY2017 revenue went
$52.55B- Operating income: $21.31B, 41% of revenue
- SG&A: $14.80B, 28% of revenue
- Cost of revenue: $11.24B, 21% of revenue
- Other operating costs: $5.20B, 9.9% of revenue
Kept 41% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 22, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $52.55B$52.82B | −0.5% |
| Cost of Revenue | $11.24B$12.33B | −8.8% |
| Gross Profit | $41.31B$40.49B | +2.0% |
| SG&A Expenses | $14.80B$14.84B | −0.3% |
| Operating Income | $21.31B$7.20B | +196.0% |
| Interest Expense | $1.27B$1.19B | +7.1% |
| Net Income | $21.31B$7.21B | +195.3% |
| EPS (Basic) | $3.57$1.18 | +202.5% |
| EPS (Diluted) | $3.52$1.17 | +200.9% |
| Shares Outstanding (Basic) | 5.97B6.09B | −2.0% |
| Shares Outstanding (Diluted) | 6.06B6.16B | −1.6% |
05—Questions
Frequently Asked Questions
How strong was Pfizer's underlying 2017 performance excluding one-time tax effects?
Revenue was roughly flat, down 1%, with a slight operational decline of $20M. Non-GAAP Adjusted diluted EPS rose 11% to $2.65. Reported EPS of $3.52 is not comparable because of the $10.7B net tax benefit from the TCJA.
What is the biggest risk to Pfizer's revenue outlook?
Loss of exclusivity. Management expects a $2.0B revenue hit in 2018 from generic and biosimilar competition, and more than $1B products made up 46% of 2017 revenue. Key exposures include Lyrica, Enbrel in Europe, and Prevnar 13 in the U.S. adult indication. Growth must come from Ibrance, Eliquis, Xeljanz and Xtandi.
What is happening with the Consumer Healthcare business?
Pfizer announced in October 2017 that it is reviewing strategic alternatives, including a full or partial spin-off or sale, and may keep the business. A decision is expected during 2018, and the 2018 guidance assumes a full year of Consumer Healthcare contribution.
How is Pfizer returning capital and managing its balance sheet?
Pfizer paid $7.7B in dividends in 2017 and raised the quarterly dividend to $0.34. It completed a $5B accelerated share repurchase in February 2017 and authorized a new $10B buyback in December 2017, with $16.4B remaining. The TCJA repatriation tax of $15.2B is payable over eight years through 2026, and the company plans to repatriate most of its international cash in 2018.
06—Continue