Multiple revenue misses in one of our winners convinced us to take profits and get out

Published Fri, Oct 28 202212:36 PM EDT

AbbVie (ABBV) reported a mixed second-quarter Friday morning. Despite a pullback in shares after the release, we decided to lock-in a great 61% return and exit a stock that has been one of this year's winners. We never like to sell on a down day, but multiple quarters in a row of revenue misses raised our concerns about growth and convinced us that taking profits now would be the wise move in this uncertain market. On the top line, net revenue increased 5.4% on an operational basis to $14.81 billion, but that missed the consensus estimate of $14.91 billion. Adjusted earnings per share increased 29.3% to $3.66, beating estimates of $3.57. Included in EPS was 2 cents per share of unfavorable impact related to acquired in-process research and development (IPR & D) and milestone expense. This is an accounting expense for drug stocks that is now required by the Securities and Exchange Commission. Adjusted operating margin of 53.4% was higher than estimates of 52.4%. Bottom line It wasn't the cleanest quarter from AbbVie. While Skyrizi appears off to a great start, Rinvoq — the other key drug investors are watching to make up lost sales as Humira loses exclusivity — came up short. With 2023 and 2024 results set to decline from current levels due to Humira going off patent in the U.S. next year, and the broader market down materially year-to-date, we feel it is time to move on from AbbVie and reallocate funds into names that provide more attractive opportunities over the next six to 12 months. In our Friday morning commentary about exiting AbbVie, we also talked about why we put some of that money to work in Starbucks (SBUX). Q3 segment results AbbVie's Immunology sales of $7.65 billion, up 16.4% year over year, were a hair short of the $7.68 billion consensus. Sales within the segment are as follows. Humira: $5.56 billion, up 3.9% year over year, versus $5.57 billion expected. Skyrizi: $1.4 billion, up 78.3% year over year, versus $1.32 billion expected. Rinvoq: $695 million, an increase of 59.3% year over year, versus $710 million expected. As a reminder, immunology is a key focus of investors because this is portfolio in transition due to the Humira loss of exclusivity in the United States in the second half of next year. While it is still up for debate how fast Humira sales will decline in 2023 and 2024, what remains clear is that Skyrizi and Rinvoq have a promising future. First approved by the Food and Drug Administration in April 2019, they have since been gaining clearance for other indications, reflecting the huge year-over-year sales gains. Hematologic oncology sales of $1.65 billion, down 9.9% year over year, missed the $1.73 billion consensus. Sales within the segment are as follows. Imbruvica: $1.14 billion versus $1.15 billion expected. Venclexta: $515 million versus $550 million expected. In aesthetics, sales of $1.3 billion, up 8.1% year over year, slightly missed estimates of $1.34 billion. Sales within the segment are as follows. Botox Cosmetic: $637 million versus $646 million expected. Juvederm: $352 million versus $342 million expected. Other: $312 million versus $335 million expected. In neuroscience, sales of $1.67 billion, up 8.3% year over year, was short of the $1.79 billion consensus. Sales within the segment: Botox Therapeutic: $699 million versus $698 million expected. Vraylar: $554 million versus $544 million expected. Duodopa: $110 million versus $122 million expected. Ubrelvy: $160 million versus $231 million expected. Qulipta: $62 million versus $60 million. Other: $87 million versus $136 million expected. In the eye care segment, sales of $623 million beat the $582 million consensus. Sales within the segment are as follows. Lumigan/Ganfort: $121 million versus $130 million expected. Alphagan: $73 million versus $92 million expected. Restasis: $142 million versus $47 million expected. Other: $287 million versus $289 million expected. Guidance Turning to the full year outlook, management now expects total net revenues of approximately $58.2 billion, down from its previous view of $58.9 billion and below estimates of $58.9 billion. Additionally, AbbVie reaffirmed the midpoint of earnings guidance, however, tightened the range to $13.84 to $13.88 per share from $13.76 to $13.96 per share. That compares to a $13.88 per share consensus estimate coming into the print. Included in the guidance is a negative impact of 25 cents per share related to IPR & D and milestones expense incurred so far this year. There are some moving parts here and we should point out that AbbVie expects a 1.9% unfavorable impact from foreign exchange. From a product perspective, AbbVie raised its Skyrizi global sales outlook by $300 million to $5.1 billon, above estimates of $4.8 billion, due to strong market share performance. This was great news However, management took down its full year Venclexta expectations to about $2 billion, below estimates of $2.22 billion, due to a lower outlook on the chronic lymphocytic leukemia (CLL) market and unfavorable foreign exchange. For the fourth (current) quarter, AbbVie expects net revenue of approximately $15.2 billion and adjusted earnings between $3.65 and $3.69 per share. Analysts had expected sales of $15.73 billion and earnings of $3.76 per share. (Jim Cramer's Charitable Trust is long SBUX. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. 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