AstraZeneca shares rise on tax bill boost
AstraZeneca has raised its profit outlook for the year after reaching an agreement with British and US authorities that will see it pay less tax than it had budgeted for.
Cash back: Fillip to the company's profit line as it faces increasing challenges
Having made provisions for $2.3bn of tax, the settlement of matters dating back more than a decade means Britain's second-biggest drugmaker will pay a only $1.1bn in 2011 to resolve US transfer pricing issues.
As a result, AstraZeneca expects 2011 core earnings to be between $6.90 and $7.20 per share, up from the $6.45 to $6.75 range previously indicated.
There will be a $500m boost to earnings in the first quarter and the effective tax rate for the year will be some 6 percentage points lower than thought, at around 21%.
The news is a fillip to the company's profit line at a time when it faces increasing challenges to some of its top-selling drugs from generic competition.
Shares in AstraZeneca are up 25.5p (0.9%) at 2,899.5p so far this morning, modestly outperforming a 0.5% increase in the European drugs sector.
AstraZeneca could look slightly more attractive with the removal of the liability said Panmure Gordon analyst Savvas Neophytou, who rates the stock a 'buy', although big pharmaceutical companies do not seem to be looking for major acquisitions just now, he added.
The latest settlement follows an earlier agreement with the British tax authorities on transfer pricing in February 2010, which also resulted in payments that were less than had been provided for, resulting in increased 2010 earnings.
Transfer pricing concerns the price at which one unit of a group sells goods or services to another unit of the same group. Such practices are receiving increased attention as tax authorities around the world seek to limit any abuse of intra-company transfers of expenses or profits.
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