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Valeant: Who Can Stomach Double-Digit Revenue Declines?

Shock Exchange profile picture
Shock Exchange


  • VRX missed on Q4 revenue, and the stock sold off by double digits.
  • Revenue fell 10% Y/Y due to asset sales and LOE. Double-digit revenue declines could be hard to stomach going forward.
  • VRX's credit metrics deteriorated compared to the year-earlier period. Were asset sales simply window dressing?
  • Until management can deliver consistent revenue growth, VRX is a sell.

Valeant (VRX) reported Q4 earnings earlier this week. The company delivered revenue of $2.163 billion and adjusted net income of $347 million. Valeant missed on revenue by $20 million. I expected VRX to melt up like it has done over the past nine months. The stock fell over 11% on the revenue. Apparently, double-digit revenue declines were hard for VRX bulls to stomach.

Total revenue fell 10% Y/Y. Bausch & Lomb and Salix - Valeant's workhorses - saw revenue rise in the low single digits. However, revenue from Branded Rx (ex-Salix) was off 57% while revenue from U.S. Diversified fell 16%. Branded Rx (ex-Salix) was off due to lower volumes from the Ortho Dermatologics business, and the impact of divestitures, particularly from the sale of Dendreon. The decline at U.S. Diversified was due to a loss of exclusivity ("LOE") for a basket of products.

The problem Valeant now faces is two-fold. U.S. Diversified is the company's highest margin business. It has a segment EBITDA margin (excluding corporate allocations) of 70% vs. about 37% for other segments. The more it declines the more it hurts the company's margins. Secondly, financial engineering is great over the short term, but management still has to prove it can offset LOE from new product launches. Single-digit revenue growth from its two anchors might not achieve the task at hand. Of note is that Bausch & Lomb's segment EBITDA margin was 28%, down from 32% in the year earlier period. It implies that the segment could lose pricing power as it attempts to attain new business.

Corporate Cost Cuts

Valeant has done a yeoman's job of cutting corporate overhead costs. Management also has been able to forgo expensive R&D projects related to divested assets - this has represented a side benefit of asset sales. Corporate allocations declined 25% from $157 million in

This article was written by

Shock Exchange profile picture
The Shock Exchange has a B.A. in economics and MBA from a top 10 business school. He has over 10 years of M&A / corporate finance experience. Currently head the New York Shock Exchange, financial literacy program based in Brooklyn, NY.His book, "Shock Exchange: How Inner-City Kids From Brooklyn Predicted the Great Recession and the Pain Ahead", predicted pain ahead for the U.S. economy and financial markets.In 2014 the law firm of Kirby, McInerney, LLP brought a class action lawsuit against Molycorp, Inc. for "materially misleading statements" in its financial statements. Kirby, McInerney used investigative journalism from the Shock Exchange to buttress its case. That's the discipline the Shock Exchange brings to every situation he covers for SA.

Analyst’s Disclosure: I am/we are short VRX.

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Comments (94)

why did Paulson buy 7 million shares of this company on the 6th?
Dude, no wonder he has difficulty even matching the "total market index" during this historic 9 year bull market, eh?!

- Are there "retail investors" still out there trying to mimic the invrsting actions of hedge fund mgrs?
- That tactic will only get you "hosed" in this secular bull market, pal.
- It's a total "loser", plus; you can't extract the "hedging" out of "hedge fund", eh?!;-)
Zhiyuan Sun profile picture
Paulson fell into valuation traps; he bought pharma stocks thinking they were cheap in 2015-2016.... when the entire sector was getting scrutinized from Shkreli and Valeant jacking up drug prices. Some of the biggest losses in his portfolio were from these unsound bets.
VRX gonna trade sideways. Dead money until next earnings.
kingRIG2.0 profile picture
It’s only 3 months, no biggie
The is what Papa is betting on:

Together these seven products represent less than $100 million of revenue. We are planning to make a significant investment to market these products over the next five years. And as we look to peak sales for these products, we expect they will represent over $1 billion of annual sales on a cumulative basis. This is the focus of our turnaround: investing in innovation, getting products approved, and successfully commercializing them.
I did a covered straddle and earn some premium for the next two months lol
Nick, why still talking about Valeant, there are many other counters which present an excellent opportunity to buy. Eg. you can go for Nutanix, a great stock to put your money in.
Huss - beat it and quit pumping.
Just added more. Next buy $13.8.
thank you I appreciate it. but the whole Market sentiment is negative today. I have already lost over $100,000 in the last 2 days, I don't think I can bear another $50,000 if it goes to low 14's. I've already placed my stop-loss limit for today which I am pretty sure it would be executed as soon as the market opens. this is my future nest egg so I have to be very careful. It's already going to be a painful weekend but I'd rather know that I still have a lot left and it's just a setback & not the end. believe me I'll be watching the next week or two and I will jump back in and I will take a heavy position again hopefully I can ride it up just a couple of bucks to get all my losses back for this week

few things:
- can somebody else post a more positive/intelligent article so we don't have to post here.
- I have Charles Schwab, every time I trade VRX I see their rating which is A as of last week. Charles Schwab doesn't give A rating very easily.
- Most analyst, even the negative ones have a price target of $18 to $25. (some even higher)
- I made very good money on VRX last year from the mid teen's all the way to upper 22's. But, I started taking large position to get back in last week from upper 18's before the report to low 16's to lower cost average & more today in 15 range. I have lost all my gains which took me a year to accumulate & then more. I like to keep holding on since I believe in this company, but frankly I don't think I can much longer. At this point I think I'm too heavily invested every $1 down costs me over $50,000. So some word of encouragements from you longs if you have any, don't want to hear from you shorts, I have heard it all from you guys in past year. unfortunately the market seems very negative & likely to be opening down with even bigger losses than yesterday. so, I don't see how possibly Valeant can do any kind of rebound or stay positive or even stay same level (I'll be happy with that). so most likely I will bail out today & try to Live Another Day
Nick read the conference call transcript of listen to the call if you haven't. Ignore the rest of the noise and make your own decision. Also watch the insider Form 4's. No insider is selling. DeSchutter a board member (M&A) expert and Herendeen (CFO) were buying the last time this was in the 14's. Watch the insiders. When they sell you sell.
thank you again, my order was executed in $14.90's range which was another $16K loss for today which I was expecting. but as I said I will get back sometime next week as soon as I see turn around. I'm just wondering where all the buyers? At this price level?
Nick - it’s a rough ride down. As a long your story is pretty good evidence of capitulation in my eyes and a sign of a bottom imo. Good luck to you.
With a $5 Billion market cap every $500 million in debt repayment is a 10% boost in the stock price from here even if revenue declines slightly on the early half of the year. It’s a 2-3 year play based on management’s long term revenue guide. There is not a more transparent company even Paul made that comment in the call.

My shares purchased in the $8-12 range are a long term hold but it’s time to get some more trading shares down here. Wouldn’t surprise me to see some Form 4’s filed shortly now that the blackout period has ended from DeSchutter and Herendeen.

How to Take a Screen you have a shiny new phone with Ice Down and Power buttons at the same time, hold them for a second, and your ph
B166ER profile picture
Earnings and guidance was perfectly in line with my expectations and mgmt is doing great. I applaud their vision and transparency.

One of the reasons I didn’t buy back my small profit taking at $22.5 when it fell back to $18 is exactly because I expected conservative guidance to spook Mr. Market again.

I’m hoping to but back the shares I sold below my average price of $13.50
Same reason why I bought all the way from $13 to $9 last april and trade this up and down over the last 10 months. 30% of my holding in VRX is long term and the rest I trade up and down.
I don’t understand why you guys still hang on to Valeant and debating about it. Just brush off Valeant and move on to some some other counters. eg. Nutanix
kingRIG2.0 profile picture
I’m up on VRX, why brush it off when it’s been very kind to me? No need for anyone to sell until 2019
B&L is a $1.44 billion EBITA cash cow and this is why the market value Cooper at 28 times EBITA.

I hope price goes down to $14 tomorrow so I can load up more shares using proceed from fixed income sales and I expect 10 years TBill will be over 3.75% by end of year. Vyzulta will add another $300mm to the bottom line this year at minimum.
B&L/International for VRX isn’t a reasonable comparison to Cooper. Less than half the division is B&L. Certainly not apples to apples with Cooper. I see this weird comparison a lot on this site, just don’t understand it.
Enjoy Investment profile picture
The guidance doesn't have revenues from new products? Why? Paul is a liar and is working for short sellers.
kingRIG2.0 profile picture
No enjoy, they are setting themselves up for beats the rest of this year
VRX is a garbage pail
Definitely a long-term investment. As a rising tide lifts all ships, bad press about prices and opioids sinks all ships regardless of whether a company is involved. Also, being off by $20M out of $2.16B is hardly noteworthy. Long term a buy, just have to be patient.
Me XMan profile picture
With market in deep correction, this will close the gap at $12.
kingRIG2.0 profile picture
Xman, I’ll be backing the truck at $12
Horrific job by management. Again. VRX is the gift that keeps on giving
MTSkyInvesting profile picture
He meant Terrific.
Unless he was short
The Company can sell Salix and it will double from here. B and L is worth $20 billion.
Dimitri Ratz profile picture
10 times revenues would place it closer to $10 billion to $13 billion, not $20 billion, and I can’t imagine anyone paying over 10 times revenue.
MTSkyInvesting profile picture
Funny how some people pretend the revenue decline was a surprise somehow? 🙂
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