King trashed today in spite of huge top and bottom line growth.Analysts seem confused about the inventory accounting. Inventory extant at wholesalers is not reported completely and accurately, so KG has a real hard time forecasting sales for the next quarter. This makes it look like KG is fudging but in reality they are simply being conservative.In the meantime, KG generates great cash flow, is entering trials on some of their own stuff and are looking for other acquisitions.Their big sin, IMO, is that they forecast too optimistically. That and the continuing SEC investigation on Medicare rebates - about which they are not talking but have reserved some cash (~49M).From DJ: NEW YORK (Dow Jones)--King Pharmaceuticals Inc. (KG) said Tuesday thathigh inventory levels of some of its key drugs are a main reason for thecompany's lower-than-expected revenue in its recently reported thirdquarter and in its projections for future periods. However, in a conference call, the maker of generic and brand-name drugswas unable to completely satisfy Wall Street's concerns about declininggrowth for some of its key drugs. "We're taking a cautious approach since sales of Altace [a drug thatreduces the risk of strokes] are starting to slow down, and we might seesome inventory pulldown on that product as well," Chief ExecutiveJefferson J. Gregory said on the call. Gregory said the decline in the company's fourth-quarter revenueforecast - which is now $395 million to $425 million, down from thecompany's previous view of $440 million and $470 million and below WallStreet's estimate of $461.2 million - comes from a variety of inventoryand sales issues. As the company noted in the call, industry data shows that wholesalershave slightly higher than three months worth of inventory on Altace andslightly less than three months of Levoxyl, a hypothyroidism treatment.The two drugs are King Pharamaceuticals' biggest sellers. Analysts struggled on the conference call to get specifics on how muchof the declines in Levoxyl and Altace come from dwindling demand and howmuch is a result from wholesalers pulling inventory off of heavily stockedshelves. King Pharmaceuticals said on its conference call that it could onlypartly delineate an answer, as it relies on industry data, which is onlysometimes correct. Gregory did say that Levoxyl inventory levels aretaking longer to be "pulled down" than the company had expected but that,on average, he expects inventory levels for most products to havenormalized by the end of the year. Normalized levels are around 2 months,he said. King Pharma's conference call followed a third-quarter report thatdisappointed many analysts. The Bristol, Tenn., company reported Tuesday that its third-quarter netincome increased to $106.1 million, or 44 cents a share, from $84.2million, or 35 cents a share, a year earlier. Excluding items, the companyhad earnings of $99.1 million, or 41 cents a share, above year-agooperating earnings of 35 cents a shares and in line with the Thomson FirstCall consensus estimate. While the company met earnings per share estimates, analysts questionedthe quality of those earnings based on lower-than-expected revenue fromAltace and Levoxyl. Sales of Altace fell 4% in the quarter to $125.4million from $130.5 million, below King's own forecast of $145 million to$165 million. Levoxyl sales fell 45% to $26.3 million from $47.8 million ayear ago. Overall, revenue increased to $424.2 million from $315.7 million butmissed Thomson First Call's consensus for $430 million. King Pharma also reduced some of its forecasts and issued guidance belowWall Street's expectations. The company lowered its fourth-quarter earnings per share estimate to 31cents to 34 cents from July estimates of 43 cents to 48 cents. Analystswere forecasting earnings of 45 cents a share. In the same period a yearago, the company earned 28 cents a share, before items. For fiscal 2003, King now expects earnings per share of $1.40 to $1.43.The company has revised its full-year outlook several times with the mostrecent estimates calling for earnings per share of $1.50 to $1.60.Analysts were expecting King to earn $1.53 a share. King Pharmaceuticals expects 2003 revenue of $1.53 billion to $1.56billion, below prior targets of $1.57 billion to $1.63 billion. WallStreet expects the company to post 2003 revenue of $1.60 billion. KingPharmaceuticals had revenue of $1.13 billion last year. For fiscal 2004, King expects earnings of $1.50 to $1.60 a share, whichwould miss the average analyst estimate of $1.79. The company expects 2004revenue of $1.75 billion to $1.85 billion, which falls short of WallStreet forecasts of $1.94 billion.
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