Suffering from higher business costs and declining demand for its contact lenses and cleansing solutions, Allergan Inc. said Tuesday that its second-quarter earnings fell 20% to $17.1 million, from $21.5 million for the period in 1989.
For the Irvine-based eye-care company, it was the third consecutive quarter that its earnings have declined on a year-to-year comparative basis. Pharmaceuticals giant SmithKline Beckman spun off Allergan as an independent publicly held company in July, 1989.
Allergan's sales for the quarter ended June 30 increased 5% to $221.2 million, from $210 million a year earlier.
The company attributed its earnings decline to a variety of factors and noted that the decline came despite cost-cutting efforts that included eliminating 344 jobs worldwide since January.
The company said changes in foreign currency exchange rates have increased costs for its overseas business operations. It also has faced higher expenses related to the transfer of all of its manufacturing operations in Irvine to plants in Puerto Rico and Waco, Tex.
Industry analysts said Allergan is facing a reduced demand in the United States for some of its most profitable products, particularly for its contact lenses and lens-cleansing solutions. The contact lens industry is shifting toward disposable lenses and one-step cleaning products, which Allergan does not make, analysts said.
Norris Battin, an Allergan spokesman, said the company is developing several products intended to compete with the one-step cleaning products being marketed by its competitors.
Analysts said growth in the contact lens business has slowed for several reasons: news reports about the potentially harmful effects of long-wearing lenses; a declining number of women between 18 to 24 years old, who are an important component of the first-time buyers' market, and the greater acceptance of eyeglasses as a fashion accessory.
"The optical business (including lenses and cleaning solutions) remains under pressure with a continuation of adverse market trends," Gavin S. Herbert, chairman and chief executive, said in a statement. "Sales in the optical division were down 7% as compared (to) the second quarter of 1989."
These trends have depressed Allergan's business for several quarters. For its latest six-month period, earnings declined 14% to $30.7 million from $35.9 million for the year-earlier period. Sales rose 7% to $416.3 million from $389 million.
Herbert said sales at Allergan's Humphrey business unit, which makes diagnostic instruments, fell 13% in the latest quarter, primarily because of soft international sales.
Herbert said, however, that the company's pharmaceutical and surgical businesses "are continuing to show strong growth following the introduction of several new products over the past three quarters."
One of Allergan's most promising new products, analysts said, is a foldable intra-ocular lens that permits cataract surgery to be performed with a smaller incision than current technology allows.
Allergan officials said that the company has no plans to start manufacturing disposable contact lenses, that it will instead concentrate on developing specialty lenses that have higher profit margins, such as bifocals and those for controlling astigmatism.