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Perrigo (PRGO) Beats on Q2 Earnings and Sales, Stock Up

Zacks Equity Research

Perrigo Company plc PRGO reported second-quarter 2019 adjusted earnings of 86 cents per share, which beat the Zacks Consensus Estimate of 81 cents. However, the bottom line decreased 29.4% year over year.

Net sales declined 3.1% year over year to $1.15 billion but outpaced the Zacks Consensus Estimate of $1.13 billion. The year-over-year decline was mainly due to poor performance of the Consumer Self-Care segment in international markets. Sales of $65 million from new products were partially offset by a loss of $27 million in sales from discontinued products. Currency movement had an unfavorable impact of $24 million. Sales declined 1.1% excluding the impact of foreign currency movement.

Shares of Perrigo were up 3% in pre-market trading on Aug 8, following the earnings release. The company’s shares have rallied 30.3% so far this year compared with the industry’s rise of 14.9%.

 

Segment Discussion

Perrigo now reports its results under the following segments – Consumer Self Care Americas (“CSCA”), Consumer Self Care International (“CSCI”) and Prescription Pharmaceuticals (“RX”). In the first quarter, the company had initiated a process to transform itself from a healthcare to consumer self-care company.

During the quarter, the company finalized a roadmap for $100 million in annualized cost-savings titled Project Momentum.

CSCA: Net sales of the segment in the second quarter of 2019 came in at $582 million, down 2.5% year over year. Excluding net sales from the divested animal health business and exited infant foods products, net sales at CSCA increased approximately 1% to $560 million. Sales of the major revenue generator for the segment, the OTC business, increased 4% year over year on the back of an extended cough/cold season, good performance of anti-allergy drugs, as well as increased sales of gastrointestinal and smoking cessation products. New drugs sales were $8 million driven by store brand equivalent of J&J’s JNJ multi-symptom relief drug, Imodium. However, the growth was partially offset by lower sales of infant nutrition category and lost sales from discontinued products of $11 million.

Please note that in July, the company completed divestment of its Animal Health business for $185 million in cash to pet medication and wellness company, PetIQ PETQ.

CSCI: The segment reported net sales of $328 million, down 8.5% from the year-ago period. However, on a constant-currency basis, the metric decreased 1.8%. Net sales of analgesics category and new product sales of $30 million, mainly driven by the launch of the weight loss product XLS Forte 5, were partially offset by lower sales in cough/cold and anti-parasites categories. The company lost sales of $6 million from discontinued products.

The CSCI segment has grown organically over the past 12 months and was able to maintain its market share in international markets. With launch of new products, CSCI segment is expected to continue its growth trend. However, currency movement may have unfavorable impact on the top line.

Rx Segment: Net sales of the segment increased 3.4% to $239 million on a reported as well as constant-currency basis. The upside can be attributed to new product sales of $27 million and continued moderation of pricing pressure in the generics industry. The company lost $9 million in sales from discontinued products.

2019 Guidance

Perrigo maintained its guidance for adjusted earnings. The company expects adjusted earnings per share in the range of $3.75 to $4.05, including impact of Ranir acquisition and Animal Health divestiture. The company anticipates an increment of up to 10 cents to the guided earnings range from the potential launch of generic version of ProAir and/or additional 5 cents from Project Momentum cost savings.

Our Take

Perrigo reported encouraging second-quarter results with earnings and sales beating estimates. Though sales declined in both the CSCA and CSCI segments, the company’s Rx segment seems to be recovering in 2019 after a weak 2018. However, it remains to be seen whether the momentum continues in the second half of 2019.

These apart, the Irish High Court granted a leave to Perrigo for judicial review of the Irish Revenue tax assessment. The company has already appealed against the tax assessment before the Tax Appeals Commission. The appeal has been stayed till judicial review is over. Perrigo will lose almost $1.9 billion if the commission rules against the company.

Perrigo Company plc Price, Consensus and EPS Surprise

 

Perrigo Company plc Price, Consensus and EPS Surprise

Perrigo Company plc price-consensus-eps-surprise-chart | Perrigo Company plc Quote

Zacks Rank

Perrigo currently carries a Zacks Rank #2 (Buy).

Vertex Pharmaceuticals VRTX is another stock to consider from the pharma sector, carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Vertex’s earnings per share estimates have moved up from $4.22 to $4.59 for 2019 and from $5.76 to $6.03 for 2020 over the past 60 days. The company delivered a positive surprise in all the trailing four quarters with the average being 17.87%. Share price of the company has increased 6% in a year’s time.

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