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Perrigo (PRGO) Up 4.1% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Perrigo (PRGO). Shares have added about 4.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Perrigo due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Perrigo Beats on Q3 Earnings, Misses on Sales

Perrigo reported third-quarter 2019 adjusted earnings of $1.04 per share, which beat the Zacks Consensus Estimate of 93 cents. However, the bottom line decreased 4.6% year over year.

Net sales increased 5.1% year over year to $1.19 billion but slightly missed the Zacks Consensus Estimate of $1.2 billion. The year-over-year growth was mainly due to addition of products from the recently closed Ranir acquisition and higher demand for existing products. Sales of $52 million from new products were partially offset by a loss of $9 million from discontinued products. Sales rose 10.2% excluding the impact of foreign currency movement.

Segment Discussion

In July, the company completed the acquisition of Ranir Global Holdings LLC, the global leader in private label oral self-care market, as part of its transformation into a self-care company. Perrigo stated in its third-quarter earnings call that the U.S. operations of Ranir will be included in the CSCA segment and non-U.S. operations will be included in the CSCI segment.

CSCA:Net sales of the segment in the third quarter of 2019 came in at $613 million, up 2.9% year over year. Excluding net sales from exited businesses and the impact of foreign currency movement, net sales at CSCA increased approximately 9.1% to $619 million. The growth in sales was driven by $54 million of net sales from products added with the Ranir acquisition, higher sales of store brand allergy products, products in smoking cessation category and new product sales of $6 million. However, it was partially offset by lower infant formula contract pack, lower net sales from Mexican business and loss of sales from discontinued business.

CSCI: The segment reported net sales of $348 million, up 4% from the year-ago period. On a constant-currency basis, the metric increased 10.1%. The growth was driven by new product sales of $28 million, especially weight loss product XLS Forte 5, and $23 million of net sales from Ranir, as well as higher sales in cough/cold/allergy/sinus category.

The CSCI segment has grown organically over the past 12 months. With the launch of new products and Ranir acquisition, CSCI segment is expected to continue its growth trend. However, currency movement may have an unfavorable impact on the top line.

Rx Segment: Net sales of the segment increased 13.6% to $230 million. The upside can be attributed to new product sales of $18 million and higher volumes of existing products. The company lost $6 million in sales from discontinued products.

2019 Outlook

Perrigo tightened its guidance for adjusted earnings per share to the range of $3.85 to $4.05 compared with the previously expected range of $3.75 to $4.05.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, Perrigo has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Perrigo has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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