Shares of CSL Limited (ASX: CSL) were slammed shortly after the market opened this morning following the release of its full-year earnings results.
The stock plummeted 5.8% to a low of $89.60, which compares to its recent high of $102.43 per share, although it soon recovered to trade at around $93.40. At that price, it has still risen a remarkable 44.8% over the last 12 months, compared to a 0.3% lift for the benchmark S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
So What: For the year ended 30 June 2015, the biopharmaceutical giant reported 6% growth in net profit after tax (NPAT) to US$1.38 billion compared to the prior corresponding period, with earnings per share (EPS) rising 8% to US$2.92 per share (roughly AU $3.99 per share).
EPS rose at a higher rate than NPAT largely as a result of the AU$950 million share buyback completed during the year, with the company announcing that it is considering another buyback program "of a similar amount to the most recent program" in the year ahead.
A share buyback program effectively decreases the total number of shares on issue, thus allowing the profit to be allocated to a smaller number of shares (in other words, a higher profit per share).
While the results look impressive at first glance; the profit was below what the market expected which would explain today's sell-off. According to the Wall Street Journal, analysts surveyed by Thomson Reuters expected a net profit of US$1.41 billion. However, profit was up roughly 10% at constant currency and after adjusting for acquisition costs which is in line with the company's own guidance.
At the same time, the average sales estimate among analysts surveyed by Bloomberg was US$5.79 billion, according to the Fairfax press. Actual sales rose just 2% to US$5.5 billion, or 7% on a constant currency basis.
Now What: CSL recently completed the acquisition of the Novartis influenza vaccine business, making CSL the second-largest influenza vaccine manufacturer in the world. The acquisition wasn't meant to be completed until late in the year, but the early completion will allow CSL to progress with the business integration much sooner.
It said: "The combined business has an extensive product portfolio, broad global sales reach, specialised R&D and scaled manufacturing, positioning the business very well to compete globally."
Pleasingly, the company also expects strong underlying demand for its products to continue into the 2016 financial year (FY16), forecasting sales growth similar to that achieved during FY15. Net profit is also expected to grow by around 5% (notwithstanding additional costs associated with capacity expansion and higher depreciation charges), with earnings per share tipped to exceed profit growth (again, as a result of an anticipated share buyback program).
While the market was clearly disappointed with the group's results, long-term investors could use the opportunity to buy an outstanding business at a reasonable price. Although the stock is unlikely to deliver big gains in the next year or so, there still appears to be plenty of value for those investors willing to remain patient.
