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Perrigo (PRGO) Beats on Q3 Earnings, Tightens '19 EPS View

Zacks Equity Research

Perrigo Company plc PRGO 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 in sales from discontinued products. Sales rose 10.2% excluding the impact of foreign currency movement.

Shares of Perrigo were down almost 1.2% in pre-market trading on Nov 6, following the earnings release. However, the company’s shares have rallied 39.8% so far this year compared with the industry’s rise of 10.2%.

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 of 2019, the company had initiated a process to transform itself from a healthcare to a consumer self-care company.

In July 2019, 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 on 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.

Please note that in July, the company had completed the 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 $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.

Our Take

Perrigo reported mixed third-quarter results with earnings beating estimates but sales missing the same. However, sales rose across all segments. The company’s transformation initiatives seem to support top- and bottom-line growth. Moreover, the company’s Rx segment returned to growth in 2019 after a weak 2018.

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 & Stocks to Consider

Perrigo currently carries a Zacks Rank #4 (Sell).

A couple of better-ranked stocks in the biotech sector are Vertex Pharmaceuticals Incorporated VRTX and Acorda Therapeutics, Inc. ACOR. Both stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Vertex’s earnings per share estimates have moved up from $4.58 to $4.79 for 2019 and from $6.03 to $6.62 for 2020 in the past 30 days. The company delivered a positive earnings surprise in all the trailing four quarters, with the average beat being 17.59%. Share price of the company has increased 19% so far this year.

Loss estimates for Acorda have narrowed from $2.98 to $2.18 for 2019 and $3.74 to $1.95 for 2020 in the past 30 days. The company pulled off a positive earnings surprise in all the last four quarters, with the average beat being 68.8%.

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