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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 that
high inventory levels of some of its key drugs are a main reason for the
company's lower-than-expected revenue in its recently reported third
quarter and in its projections for future periods.
However, in a conference call, the maker of generic and brand-name drugs
was unable to completely satisfy Wall Street's concerns about declining
growth for some of its key drugs.
"We're taking a cautious approach since sales of Altace [a drug that
reduces the risk of strokes] are starting to slow down, and we might see
some inventory pulldown on that product as well," Chief Executive
Jefferson J. Gregory said on the call.
Gregory said the decline in the company's fourth-quarter revenue
forecast - which is now $395 million to $425 million, down from the
company's previous view of $440 million and $470 million and below Wall
Street's estimate of $461.2 million - comes from a variety of inventory
and sales issues.
As the company noted in the call, industry data shows that wholesalers
have slightly higher than three months worth of inventory on Altace and
slightly 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 much
of the declines in Levoxyl and Altace come from dwindling demand and how
much is a result from wholesalers pulling inventory off of heavily stocked
King Pharmaceuticals said on its conference call that it could only
partly delineate an answer, as it relies on industry data, which is only
sometimes correct. Gregory did say that Levoxyl inventory levels are
taking longer to be "pulled down" than the company had expected but that,
on average, he expects inventory levels for most products to have
normalized by the end of the year. Normalized levels are around 2 months,
he said.
King Pharma's conference call followed a third-quarter report that
disappointed many analysts.
The Bristol, Tenn., company reported Tuesday that its third-quarter net
income increased to $106.1 million, or 44 cents a share, from $84.2
million, or 35 cents a share, a year earlier. Excluding items, the company
had earnings of $99.1 million, or 41 cents a share, above year-ago
operating earnings of 35 cents a shares and in line with the Thomson First
Call consensus estimate.
While the company met earnings per share estimates, analysts questioned
the quality of those earnings based on lower-than-expected revenue from
Altace and Levoxyl. Sales of Altace fell 4% in the quarter to $125.4
million 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 a
year ago.
Overall, revenue increased to $424.2 million from $315.7 million but
missed Thomson First Call's consensus for $430 million.
King Pharma also reduced some of its forecasts and issued guidance below
Wall Street's expectations.
The company lowered its fourth-quarter earnings per share estimate to 31
cents to 34 cents from July estimates of 43 cents to 48 cents. Analysts
were forecasting earnings of 45 cents a share. In the same period a year
ago, 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 most
recent 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 $1.56
billion, below prior targets of $1.57 billion to $1.63 billion. Wall
Street expects the company to post 2003 revenue of $1.60 billion. King
Pharmaceuticals had revenue of $1.13 billion last year.
For fiscal 2004, King expects earnings of $1.50 to $1.60 a share, which
would miss the average analyst estimate of $1.79. The company expects 2004
revenue of $1.75 billion to $1.85 billion, which falls short of Wall
Street forecasts of $1.94 billion.

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