The market has undergone a topsy-turvy second half of 2014; but for investors in leading generic drugmaker Mylan (NASDAQ: MYL ) , the year's brought a bountiful harvest. Mylan's stock has rocketed up more than 20% year to date, with shares vaulting higher by more than 15% in the past month alone.
Wall Street's confidence in the company's deal to acquire a portion of healthcare giant Abbott Labs' generic drug unit has certainly helped that trend both from the anticipated tax advantages, and the addition of the business' significant annual sales. However, Mylan had the chance after the market close on Thursday to add to its 2014 windfall with a solid third-quarter result. Let's take a look at how the company fared.
Beating the Street on both sides
Investors already received a welcome boost from Mylan's improved guidance earlier in October, but the company impressed, yet again, with a solid top- and bottom-line beat on Thursday. The generic drugmaker reported diluted earnings per share of $1.16, a jump of 41% year over year that topped Wall Street's quarterly projections by $0.02. Mylan's revenue surged by 18% over last year's Q3, hitting $2.08 billion to exceed average estimates of $2.07 billion for the quarter.
If earlier guidance raises weren't enough, Mylan also increased its full-year earnings projection. Now, the company expects 2014 earnings per share between $3.54 and $3.60, up from an earlier estimated range of between $3.44 and $3.54.
Why the optimism? Mylan's business revved up across all segments in the third quarter. Third-party sales of specialty drugs, in particular, highlighted Mylan's jump, with a 29% year-over-year gain in revenues.
While specialty drugs make up only around 22% of the company's total sales, it's a stellar gain that's helped the drugmaker's adjusted free cash flow jump by more than 65% year to date, according to CFO John Sheehan. Mylan also pushed its gross margin higher, gaining three percentage points, to 54% in the third quarter.
The company's generics business, its bread and butter, which is responsible for the large majority of total revenue, didn't skimp out on growth, either. Third-party net sales of generics climbed 18% year over year, with a surge in North American sales by 19% powering that gain.
Will growth keep up?
It's an exciting result for Mylan investors; but what does it mean for this company's -- and its stock's -- future?
The North American generic drug market is on fire. Mylan's strong report comes after rival Teva Pharmaceuticals (NYSE: TEVA ) reported its own third-quarter results recently. Teva's U.S. generic drug sales hit a snag in the third quarter, but still have jumped 8% during the past nine months, with increased profitability making up for the Q3 sales slide.
With overall U.S. healthcare expenditures still on the rise, lower-priced generic drugs should continue to see gains against far more expensive branded drugs in terms of overall prescriptions. The IMS Institute for Healthcare Informatics projected back in Dec. 2012 that generic drugs will make up 87% of overall prescriptions by 2017, a big jump from a 78% share of prescriptions in just 2010. That bodes well for Mylan's North American business, which makes up more than half of the company's generic third-party net sales, and around 40% of total company revenues.
Mylan's European business still holds its own, with a 15% share of generic revenue -- and, unfortunately, growth hasn't been so strong across the Atlantic, with a mere 1% year-over-year gain in net third-party sales for the quarter. However, the company's overseas business should see a lift if, as expected, Mylan's agreement to acquire a portion of Abbott Labs' generic business closes by the beginning of 2015.
Wall Street estimates that the deal will add up to $2 billion in annual revenues to Mylan's coffers from drug sales in Europe, Australia, New Zealand, and Japan. The two companies have adjusted terms of the deal so that Abbott will receive a 22% stake in the new company, presumably to pass by updated U.S. regulatory laws aimed at cracking down on tax inversions. Still, with Mylan looking to incorporate overseas should the deal close, the company hopes to lower its tax hit from a current 25% rate down into the mid-teens in the coming years.
The result? The drugmaker aims at full-year diluted earnings per share of $6 by 2018. If the deal to acquire Abbott's unit succeeds, and Mylan makes the most of its new business while keeping North American generic drug growth on track, this stock is poised to emerge as a long-term winner. Today's earnings beat is another brick on the foundation of that success.
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Richard Levine/Alamy Vermont-based ice cream maker Ben & Jerry's has decided to keep the name of its new ice cream flavor, Hazed & Confused, according to Bloomberg. The company had considered a change in response to the complaint of a couple whose son, Harrison Kowiak, died in a fraternity hazing incident in 2008. The parents said that the name was insensitive and belittled a dangerous campus practice. Ben & Jerry's, which is owned by Unilever (UN), initially released the flavor in February 2014, reported Franchise Herald. The name is a reference to the phrase "dazed and confused," which is the name of a Led Zeppelin song and a 1993 coming-of-age move, according to Bloomberg. The ice cream contains chocolate and hazelnut, the latter being the source of the "hazed" part. Lianne and Brian Kowiak took notice in September and complained to the company. The website StopHazing.org urged its readers to send protests to Ben & Jerry's. The company said that it had only received a handful of comments, but would consider a name change in its October management meeting. Harrison Kowiak had a golf scholarship to Lenoir-Rhyne University. When a sophomore in 2008, he had pledged the Theta Chi fraternity, as the Tampa Bay Times reported. A lawsuit filed by the Kowiaks claimed that their 160-pound son and another boy had been put through a gauntlet line, where they were pushed, shoved, and tackled by fraternity members who weighed as much as 250 pounds and were on the school's football team. 
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Courtesy Hilton WorldwideWelcome, new owners! When the Waldorf Astoria Hotel opened on New York City's Park Avenue in 1931, President Herbert Hoover called it "an exhibition of courage and confidence to the whole nation." He didn't mean China. So one can imagine Hoover spinning in his grave over this week's announcement that Chinese insurance company Anbang purchased the hotel from Hilton Worldwide Holdings, for a whopping $1.95 billion. A Hilton spokesperson told me that "Many luxury hotels in New York have foreign ownership" -- among them the Carlyle, Mandarin Oriental, Pierre, Plaza and Peninsula -– "so it's not an atypical arrangement by any means." And Chinese companies have been buying U.S. real estate for years now, including the General Motors Building and One Chase Manhattan Plaza in New York. Still, for many (not just) Americans, this particular sale strikes close to the heart. The Waldorf's 1,413 guest rooms, three restaurants and 60,000 square feet of banquet halls occupy a whole city block and have hosted U.S. presidents, world leaders and countless celebs. Given that pedigree, the sale can feel like a blow to American national pride. If you were around in the 1980s and early '90s, the sale of the Waldorf and other properties may also recall the Japanese buying spree of American landmarks from Rockefeller Center to Pebble Beach Golf Club. You probably remember media reports of a "Japan panic," with American investors priced out of the U.S. property market. Is there cause for a China panic this time? "It's not the same," says Susan Wachter, professor of real estate and finance at the Wharton School of the University of Pennsylvania. "The driving force in the Japan expansion was that Japanese market prices were so high -- clearly in bubble territory. Japanese investors found U.S. real estate bargain priced, and overpaid," Wachter says, causing a corresponding run up in U.S. prices. On the other hand, Wachter calls Chinese real estate investors "much more long term and selective," with no desire to inflate prices. Case in point: $1.95 billion, while an eye-popping sum, is about current market value for a city block in Midtown Manhattan. As an insurance company, she says, Anbang "needs steady, safe returns over the long run, not short-term opportunities for cheap properties and quick profits." Another big difference: in addition to the purchase price, the deal includes a separate 100-year management contract with Hilton, and Hilton says that Anbang will pay for hotel renovations. The Hilton spokesperson says it all "speaks to the relationship and the benefits that can come out of it." "There will be case studies on this investment," Wachter predicts. "It's about as far as you can get from a strategic, in-and-out investment."