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Watson Stock Rises Despite Lower Profit

Earnings: Corona pharmaceutical company announces plans to license experimental lupus drug.

November 14, 2000|From Reuters

Generic drug maker Watson Pharmaceuticals Inc. reported lower third-quarter operating earnings Monday, but the outlook for profit through 2001, a licensing deal for a potential lupus drug and short covering pushed its stock up about 10%.

Corona-based Watson projected on-track earnings through 2001 and announced plans to license Genelabs Technologies Inc.'s experimental lupus drug. Watson shares gained $4.94 to close at $56.94 on the New York Stock Exchange.

Watson reported a third-quarter operating profit of $7.7 million, or 3 cents a share, down from $58.3 million, or 38 cents, in the year-ago quarter. Revenue rose to $183.4 million from $171.2 million.

Analysts on average had forecast earnings of 4 cents a share, according to researchers First Call/Thomson Financial.

But the earnings largely had been forecast in September when Watson told investors that lower-than-expected product sales related to its recent acquisition of Schein Pharmaceutical Inc. would hurt quarterly performance.

"My suspicion is that we'll have to wait for the next couple of quarters to see what exactly is going on. Some people expected it to be worse. We are seeing some short covering," said Jerry Treppel, an analyst at Banc of America Securities.

Watson also cited aggressive generic pricing competition in its branded dermatology line, and higher-than-expected goodwill and operating expenses related to the Schein deal as adding to its quarterly woes.

Looking ahead, Watson said it expects fourth-quarter net earnings in the range of 38 cents to 40 cents per share. Analysts' consensus forecast is 39 cents per share.

For fiscal 2001, Watson estimated earnings at $2.38 to $2.40 per share. The First Call consensus estimate is $2.37 per share.

Separately, Watson said it will purchase 3 million unregistered shares of Genelabs for about $20.5 million, or $6.85 per share.

Shares of Genelabs rose 88 cents to close at $5.56 on Nasdaq.

At a Glance

Other Southern California company earnings, excluding one-time gains and charges unless noted:

* Arden Group Inc., the Los Angeles-based parent of Gelson's Markets and Mayfair supermarkets, reported third-quarter net income of $2.8 million, or 81 cents, compared with $2.3 million, or 65 cents. Sales rose 11% to $88.0 million.

* Film Roman, the North Hollywood-based TV animation studio and developer of "The Simpsons," reported a third-quarter net loss of $375,000, or 4 cents per share, compared with a net loss of $2.0 million, or 23 cents, a year ago. Revenue rose 39% to $5.0 million. In October, Pentamedia Graphics, India's largest multimedia production company, agreed to purchase a 51% stake in the company.

* Hot Topic Inc., a mall-based specialty retailer of teen apparel and gifts, reported third-quarter net income of $7.3 million, or 68 cents per share, compared with net income of $4.3 million, or 44 cents, a year ago. Per-share amounts reflect a 2-for-1 stock split of Dec. 28, 1999. Sales rose 51% to $72.2 million and same-store sales rose 15%.

Industry-based Hot Topic also announced plans for a new mall-based apparel store for "plus-size" teens.

* Marina del Rey-based Scheid Vineyards, which operates vineyards in Monterey County, reported net income of $2.6 million, or 47 cents per share, compared with a net loss of $298,000, or 5 cents, a year ago. Revenue rose to $10.3 million from $928,000. The company said that through nine months ended Sept. 30, it was able to harvest 53% of its producing acres compared with 7% during the comparable 1999 period.

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