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Allergan, Other O.C. Firms Hurt by Euro's Decline


Allergan Inc.'s stock was pummeled Tuesday after an analyst downgraded the shares, raising concerns that Europe's sagging currency is eroding the company's sales.

The Irvine pharmaceutical firm, which generates about 25% of its sales in Europe, is the latest example of how the continent's sluggish currency, the euro, is putting a drag on U.S. companies. On Monday, an analyst lowered profit estimates for Edwards Lifesciences Corp., an Irvine-based artificial heart-valve maker, citing a "worse than expected hit from foreign currency." Beckman Coulter Inc., a Fullerton maker of laboratory instruments, also said Tuesday that it has felt the pinch from Europe.

Medical-products suppliers and device makers are seen as being especially vulnerable to the waning euro. That's because demand for their goods is high and many U.S. firms do clinical trials there, said David G. Anast, publisher of the Biomedical Market Newsletter in Costa Mesa.

Allergan's stock, which had been rising in recent months, fell 9% Tuesday to $72.25, after Credit Suisse First Boston analyst David Maris lowered his rating to "buy" from "strong buy." He did so partly because the declining euro means sales in Europe are worth less in dollars. He also lowered third-quarter revenue projections to $389.5 million from $410 million. Allergan specializes in eye and skin-care treatments.

Allergan spokeswoman Suki Shattuck declined to comment on third-quarter results. She emphasized that Allergan's fundamentals remain strong, but did note that the euro's decline had shaved about 2 percentage points off Allergan's sales in the first six months this year, or about $16 million.

The euro has dropped 12% against the dollar since January and 7% in the third quarter alone. Experts say the euro is hurting from a persistently strong U.S. dollar and may also be a symptom of concerns about the economies of Western Europe, including government over-regulation and the slow pace of reform in tax systems and social security.

The weak euro, which makes exports of U.S. companies more expensive, has already stung an array of American businesses. Bausch & Lomb Inc. has warned investors that the continued decline of the currency is one of several factors accounting for disappointing earnings and sales in the third quarter. McDonald's Corp., Gillette Co. and Estee Lauder Cos. also have warned in recent weeks that the sluggish euro is eroding their European sales and earnings.

"A lot of companies that sell into the European market are feeling the impact," said Joanne Weunsch, a health-care analyst with ING Barings LLC. "That's the punch line."

Like Allergan, Beckman, a manufacturer of laboratory instruments systems and products, derives about 25% of its sales from Europe. As such, the company is expecting the euro to clip 1.5 to 2 percentage points from sales this year, said Jeanie Herbert, Beckman's manager of investor relations.

"We're going to have good solid sales growth [overall], but it would probably be better if the euro was stronger," she said.

Beckman shares lost 81 cents Tuesday to close at $75.44 on New York Stock Exchange trading.

Edwards also appears to be headed for a weaker third quarter than previously expected, according to a report issued Monday by Credit Suisse First Boston. Analysts at the firm lowered Edwards' earnings-per-share estimate to 23 cents from 27 cents, as well as its fourth-quarter earnings estimate.

Edwards shares closed at $20.13 Tuesday, down 6 cents in New York Stock Exchange trading. But the company's shares dropped more than 7% on Monday. Edwards could not be reached for comment Tuesday.

Analysts said that despite the hit from the euro, many companies such as Beckman are trying to protect their profits by implementing several strategies, including currency-hedge programs.

Even so, that might not matter much to investors. "We're in a market environment where people are focusing on revenue growth," said Deutsche Banc Alex. Brown analyst Bruce Jacobs. "And if a company fails to meet its targets, that could have an effect on its stock price in a meaningful way."

Dow Jones Newswires contributed to this report.

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