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Valeant seeing early impact on profits from acquisition of Bausch and Lomb

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MONTREAL - Valeant Pharmaceuticals is seeing more clearly the merits of its acquisition last summer of eye care company Bausch and Lomb and remains on the hunt for another big acquisition this year.

The division's organic sales grew by a strong 10 per cent in the fourth quarter on strong gains in the United States and emerging markets, including China.

"Fingers crossed, Bausch and Lomb is operating on all cylinders," chairman and CEO Michael Pearson said Thursday during a conference call to discuss Valeant's fourth-quarter results, which beat analyst expectations.

The Quebec-based company (TSX:VRX) said it swung to a large profit partly on the contribution of Baush and Lomb, which it acquired in August.

Valeant earned $124 million or 36 cents per diluted share in the quarter. That compared with a loss of $89.1 million, or 29 cents per share, in the same period a year before. Revenues surpassed $2 billion for the first time, rising from $986.3 million in the prior-year period.

The results pushed the company's shares to an all-time high of $170.45 in early Thursday trading. They were up 2.43 per cent, or $3.94 at $166.32 by late afternoon on the Toronto Stock Exchange.

Adjusted for one-time items, Valeant earned $731.5 million or $2.15 per share in the quarter, up from $379.6 million or $1.22 per share a year earlier.

The company had been expected to earn $2.06 per share in adjusted profits on $2.06 billion of revenues, according to analysts polled by Thomson Reuters.

After years of losing market share, Baush and Lomb's new products and the growth of its surgical business is putting the division "back into the contact lens game," Pearson said, citing comments of optometrists at a recent conference.

"We are very pleased with this performance so far and expect to see this continue in 2014," he told analysts.

Pearson said doctors are looking for alternatives to competitors like Swiss-based Alcon and are "hungry for a second strong competitor."

Neil Maruoka of Canaccord Genuity said the strong performance of Bausch and Lomb contributed to Valeant beating analyst forecasts.

"Organic growth is a pleasant surprise," he wrote in a report, noting it has been an area of focus for many investors over recent quarters.

Same-store organic growth was two per cent, including the impact of genericized products and 12 per cent when excluding that factor.

While its U.S. business decreased three per cent because of generics, sales in the rest of the world grew 12 per cent and emerging markets were up eight per cent.

The company, based in Laval, Que., said the quarterly results reflect restructuring and integration and other charges of $128 million, primarily related to the acquisition of Bausch and Lomb.

Valeant said its developed markets revenue was $1.6 billion, up 122 per cent from the fourth quarter of 2012, primarily due to the Bausch and Lomb acquisition.

The company's emerging markets revenue in such regions as Russia, China and the Middle East, was $493 million, up 77 per cent, also primarily led by the eye-care acquisition.

For the full year, it lost $866.1 million or $2.70 per diluted share, compared with a loss of $116 million or 38 cents in 2012. Adjusted profits increased to $2.04 billion or $6.24 per share, 10 cents ahead of analyst forecasts. It earned $1.41 billion or $4.14 per share in 2012. Revenues grew to $5.77 billion from $3.48 billion.

The company also reaffirmed its 2014 cash earnings per share guidance of between $8.25 and $8.75, which includes overcoming the impact of currency fluctuations since the beginning of the year of approximately 10 cents per share.

The guidance does not include the acquisition of PreCision Dermatology Inc., which is expected to close in the second quarter of 2014. Total revenue for 2014 is expected to be in the range of $8.2 billion to $8.6 billion.

Valeant said its appetite for both small and large acquisitions remains intense, but that it will only pursue deals that make financial sense.

It sees opportunities in many areas and geographies including China.

"We are still quite confident that over the course of the year we'll be successful with at least one significant transaction," Pearson said.

Follow @RossMarowits on Twitter

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