Out of sorts on CSL

Not everything is going CSL’s way, but neither is the diagnosis woeful.

“I still believe we will turn this business around,” says CEO Paul Perrault.

CSL (CSL) $110

When CSL’s flu drug division sneezes, the company’s base of 139,000 shareholders catch a cold.

The plasma giant today became the latest high-multiple blue chip to be given short shrift by the market, one reason being higher-than-expected losses for the Seqirus flu drug division.

Some investors may also have been nonplussed by CSL’s overall current year guidance of net earnings growth of 11 per cent (in constant currency terms).

The rebranded Seqirus became the world’s second-biggest flu drug maker after last year’s acquisition of Novartis’s flu vaccine arm.

However CEO Paul Perreault, who rues that everyone wants to talk about Seqirus even though it delivers only 10 per cent of earnings, says the losses were merely at the higher end of guidance and the division should return to profit by 2018.

He adds that sales were also lower because of a mild northern hemisphere flu season and there’s nothing management can do about that.

“I still believe we will turn this business around,” he says.

Depending on what adjusted profit number you choose to adhere to, CSL delivered on guidance … we think. Reported full-year earnings of $1.242bn were 10 per cent down, but 5 per cent higher in underlying “constant currency” terms.

The headline number excludes $90m of Novartis’ integration costs.

Not for the first time, CSL’s star performer was the mainstay Behring plasma products arm, which recorded a10 per cent sales increase (in constant currency terms) to $US5.245bn.

“We really had a lot of robust demand for the differentiated therapeutics we supply to patients around the globe,’’ Perreault says.

Immunoglobins remain the core of CSL’s portfolio, with sales of the subcutaneously delivered Hizentra soaring 31 per cent and sales of the intravenous Privigen rising a “solid” 7 per cent.

Still, not everything is going CSL’s way and we’re not talking about the Queen declining to send a message of congratulations in its centenary year.

Perreault cites a “very competitive” market for Behring and that’s not just the usual cookie-cutter comment CEOs like to chuck in to show they’re not over-imbued with hubris.

One headwind is pharma giant Shire’s $32bn acquisition of biotherapies group Baxalta, which was spun off from CSL rival Baxter International.

“Shire has to turn (Baxalta) around, it’s a big acquisition for them,’’ Perreault says, adding that Shire’s hungrier approach is not yet evident in pricing.

CSL’s 5 per cent share shellacking had shareholders reaching for their Kleenex. But there are many moving parts to this one and we expect this initial reaction will be revised – for better or for worse.

The Australian accepts no responsibility for stock recommendations. Readers should contact a licensed financial adviser. The author owns CSL shares.