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Perrigo (PRGO) Q4 Earnings Miss, Sales Beat, Stock Down

Zacks Equity Research

Perrigo Company plc PRGO reported fourth-quarter 2018 adjusted earnings of 97 cents per share, which missed the Zacks Consensus Estimate of 98 cents. The bottom line also decreased 24.2% year over year.

Net sales declined 6.9% year over year to $1.2 billion but outpaced the Zacks Consensus Estimate of $1.18 billion. The year-over-year decline was mainly due to lower sales volume in the Prescription segment. Sales of $51 million from new products were partially offset by a loss of $16 million in sales of/from discontinued products.

Shares of Perrigo were down 4.6% in pre-market trading on Feb 28, possibly due to lowered earnings and revenue guidance for 2018. Also, the stock has declined 40.8% in a year’s time.

Segment Discussion

Perrigo reports under three segments: Consumer Health Care Americas (“CHCA”), Consumer Healthcare International (“CHCI”) and Prescription Pharmaceuticals (“RX”).

CHCA:  CHCA net sales in the fourth quarter of 2018 came in at $617 million, down 4.1% year over year. Strong performance of smoking cessation and analgesics was more than offset by lower net sales in the animal health business and nutrition categories. The new product sales of $10 million were completely offset by the lost sales from discontinued products. Excluding animal health category, sales decreased 1.9% organically.

CHCI: CHCI segment reported net sales of $356 million, down 4.9% from the year-ago period. On a constant-currency basis, the metric decreased 0.5%. Excluding the sales of $2 million from the exited Russian and unprofitable distribution businesses in 2017 and unfavorable foreign currency movements of $10 million, net sales remained almost flat.  Net sales of diagnostics and analgesics categories and new product sales of $10 million were mostly offset by lower sales in lifestyle and cough cold category. The company lost sales of $2 million from discontinued products.

RX:  This segment’s net sales declined 14.9% to $222 million on a reported basis as well as on a constant-currency basis. The downside can be attributed to several industry-based factors including pricing pressure and supply constraints for few products.

While new product sales of $22 million contributed to the top line, the company lost sales of $4 million from discontinued products.

2018 Results

Perrigo recorded full-year sales of $4.7 billion, down 4.3% on a year-over-year basis. The reported figure included new product sales of $170 million, partially offset by discontinued products of $66 million. Currency movements resulted in a loss of $34 million in sales. The company’s adjusted loss for the period was $4.55 per share, lower than the year-ago loss of $4.93 per share.

The company has announced that it will provide an update on portfolio reconfiguration and cost-savings plans among others as well as its guidance for 2019 at the Investor Day presentation to be held on May 9, 2019.

Our Take

Perrigo’s revenues and margins have been under pressure in 2018 mainly due to the challenges faced by its Rx segment. This is likely to continue in 2019. However, the company’s plan to divest the Rx segment will help it to better capitalize on differentiated generic pharmaceutical products and focus on expanding its leading consumer business. Perrigo also expects sales to increase in 2019 at its CHCI segment.

Meanwhile, the company is focusing on switching of prescription drugs to over-the-counter (“OTC”) brands and expanding store brand solution to drive growth at the Consumer Healthcare Americas segment. In the second half of 2018, the company received the FDA approval for a stored brand OTC equivalent of Johnson & Johnson’s JNJ multi-symptom relief drug, Imodium, and also entered into an agreement with Merck MRK to gain exclusive rights to the OTC version of the latter’s allergy drug — Nasonex nasal spray.

These apart, the Irish High Court has 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, which has been stayed till judicial review is resolved. A win for the company will save almost $1.9 billion.

Zacks Rank & Stock to Consider

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

Celgene Corporation CELG is a better-ranked stock in the biotech sector, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Celgene’s earnings estimates have been revised 5.3% upward for 2019 and 9.2% for 2020 over the past 60 days. The stock has rallied almost 42% so far this year. In a year’s time, shares of the company have gained 42%.

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