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What's in the Cards for Perrigo (PRGO) This Earnings Season?

Zacks Equity Research

Perrigo Company plc PRGO is expected to report fourth-quarter and full-year 2018 results after market close on Feb 27.

Perrigo’s earnings history has been quite impressive with the company surpassing expectations in all the last four quarters, with the average beat being 4.6%. In the last reported quarter, the company delivered a positive surprise of 3.81%.

Shares of the company have lost 34.6% in the past six months compared with the industry’s decrease of 1.7%.

Let’s see how things are shaping up for the upcoming announcement.

Factors Likely to Influence Results

Perrigo is currently focused on the growth strategy of Consumer Healthcare Americas segment through switching of prescription drugs to over-the-counter (“OTC”) brands and expansion of store brand solution. The company launched the OTC version of several drugs in the past couple of quarters, which are likely to boost the company’s top line in the soon-to-be reported quarter.

In September, the FDA approved a stored brand OTC equivalent of J&J’s JNJ multi-symptom relief drug, Imodium. In August, the company entered into an agreement with Merck MRK to gain exclusive rights to the OTC version of the latter’s allergy drug, Nasonex nasal spray. Moreover, the launch of the OTC version of heartburn drug, Omeprazole delayed release in April is likely to boost sales this quarter.

However, the company also settled patent litigations related to several drugs, which may increase expenses in the fourth quarter.

The new products in the Consumer Healthcare Americas business and Consumer Health Care International segment saw improved sales in the third quarter – a trend expected to continue this quarter. However, declining sales at animal health business may offset the gain from new products.

On its third-quarter earnings call, Perrigo lowered its sales and earnings outlook for 2018 on lower expectations for Prescription Pharmaceuticals (Rx) segment. Sales in the Rx segment has been on a declining trend so far 2018 and we expect sales to be lower in the soon-to-be-reported quarter.

Meanwhile, the ongoing restructuring initiatives and operating expense discipline are anticipated to cushion the company’s bottom line. In August, the company announced its plan to spin-off its Rx business to create value for shareholders and focus on expanding its leading consumer business. The segment has been facing declining sales due to delay in launch of products and price erosion.

On the earnings call, we expect the company to provide an update on the progress of the plan to spin-off Rx business as well as the benefits arising from focusing on OTC market.

Earnings Whispers

Our proven model does not conclusively show that Perrigo is likely to beat estimates this reporting cycle. This is because a stock needs to have both a positive Earnings ESP and a solid Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate (96 cents) and the Zacks Consensus Estimate (98 cents) is -2.12%.  You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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

Note that we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Perrigo Company plc Price and EPS Surprise

 

Perrigo Company plc Price and EPS Surprise | Perrigo Company plc Quote

Stock to Consider

Here is a biotech stock that you may want to consider as our model shows that it has the right combination of elements to post an earnings beat this quarter.

Mallinckrodt MNK has an Earnings ESP of +5.36% and a Zacks Rank #2. The company is scheduled to report results on Feb 26. You can see the complete list of today’s Zacks #1 Rank stocks here.

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