Bausch (BHC) Q2 Earnings & Revenues Miss Estimates, Down Y/Y

Shares of Bausch Health Companies Inc. BHC gained 3.44% as weaker-than-expected second-quarter results were overshadowed by its announcement to spin off its eye health business, Bausch + Lomb, into an independent, publicly-traded entity.

Bausch’s stock has plunged 35.2% in the year so far compared with the industry’s decline of 2.1%.

The company’s adjusted earnings per share of 47 cents missed the Zacks Consensus Estimate of 66 cents and declined from $1.06 reported in the year-ago quarter.

Total revenues of $1.6 billion missed the Zacks Consensus Estimate of $1.8 billion and declined from $2.1 billion a year ago. Revenues were negatively impacted by the COVID-19 pandemic to the tune of approximately $500 million.

Quarter in Detail

Revenues in the Bausch + Lomb/International segment (comprised 53% of the total revenues) were $883 million, down 27% year over year. Excluding the impact of discontinuations and divestitures, the segment organically declined approximately 24% due to the impacts of the COVID-19 pandemic.

The Salix segment revenues declined 21% year over year to $404 million due to the impact of the COVID-19 pandemic and loss of exclusivity of products in the segment, primarily Apriso. Sales of Xifaxan declined 12%.

The Ortho Dermatologics segment revenues were $116 million, down 5% year over year.

Diversified Products segment revenues were $261 million, down 17% from the year-ago quarter, primarily due to the loss of exclusivity of certain products and the pandemic-led impacts.

During the quarter, the company repaid debt by approximately $100 million with cash generated from operations.

2020 Guidance Updated

The company updated its revenue guidance range for 2020, primarily due to the actual and anticipated impacts of the COVID-19 pandemic. Revenues are now projected to be $7.80-$8.00 billion compared with the previous guidance of $7.80-$8.20 billion.

Intentions to Spin-Off Eye Health Business

Concurrent with the second-quarter results, Bausch announced intentions to spin off its eye health business, Bausch + Lomb, into an independent, publicly-traded entity. The spinoff will establish two separate companies, which include a fully integrated, pure-play eye-health company built on the iconic Bausch + Lomb brand and a diversified pharmaceutical company with a focus on gastroenterology, aesthetics/dermatology, neurology and international pharmaceuticals.

Bausch + Lomb - NewCo, which will consist of Bausch Health's global vision care, surgical, consumer and ophthalmic Rx businesses, generated 2019 revenues of approximately $3.7 billion. The pharmaceutical company will comprise a diversified portfolio of leading durable brands across the Salix, International Rx, Solta, neurology and medical dermatology businesses. This business generated revenues of approximately $4.9 billion in 2019. Bausch Health expects to report Bausch + Lomb as a separate segment beginning the first quarter of 2021.

The move is intended to improve strategic focus and enhance financial transparency to better enable stakeholders to value each business independently.

Our Take

Bausch missed on earnings and sales in the second quarter as the COVID-19 pandemic wreaks havoc worldwide. The company also tightened its annual guidance amid the uncertainty. Postponement of elective medical procedures until the situation stabilizes will continue to affect the surgical business.

Nevertheless, the company’s move to separate its eye care business has been received well by the investors as it puts drug pricing and accounting scandals at the back. In the last four years, the company has divested approximately $4 billion of non-core assets and paid down more than $8 billion of debt. It recently resolved the legacy investigation by the U.S. Securities and Exchange Commission for $45 million regarding its former relationship with Philidor Rx Services, LLC and certain accounting practices and disclosures related to the 2014 and 2015 reporting periods.

Earlier, the company also resolved the outstanding Xifaxan IP litigation with Sandoz, the generic unit of Novartis NVS. The company now holds market exclusivity for the drug until 2028.

Zacks Rank & Stocks to Consider

Bausch currently carries a Zacks Rank #3 (Hold). A couple of better-ranked stocks in this space are Dr. Reddy’s Laboratories Ltd RDY and Supernus Pharmaceuticals, Inc. SUPN. Both carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dr. Reddy’s earnings per share estimates have risen from $1.84 to $1.93 for 2020 and from $2.11 to $2.17 for 2021 over the past 60 days.

Supernus’ earnings per share estimates have risen from $1.44 to $1.49 for 2020 and from $1.66 to $1.82 for 2021 over the past 30 days.

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