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Why Is Perrigo (PRGO) Up 6.9% Since Last Earnings Report?

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Zacks Equity Research
·4 min read
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A month has gone by since the last earnings report for Perrigo (PRGO). Shares have added about 6.9% 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 Q3 Earnings Surpass Estimates, Revenues Miss

Perrigo reported third-quarter 2020 adjusted earnings of 93 cents per share, which beat the Zacks Consensus Estimate of 84 cents. However, the bottom line decreased 10.6% year over year. Earnings were hurt by the recall of albuterol sulfate in September 2020.

Net sales increased 1.3% year over year to $1.21 billion, slightly missing the Zacks Consensus Estimate of $1.23 billion. The year-over-year growth was driven by higher sales in the consumer self-care segment in the United States, partially offset by lower sales of the consumer self-care segment in ex-U.S. markets and the Rx segment. Organic net sales were down 0.4% year over year.

However, the company stated that better-than-expected recoveries were observed in both the consumer self-care international and Rx base businesses during the quarter. Moreover, sales in the branded self-care and generic prescription product categories improved to near pre-COVID-19 levels, following disruption in the second quarter.

Segment Discussion

CSCA: Net sales of the segment in the third quarter of 2020 came in at $664 million, up 7.3% year over year, driven by $24 million in sales from Dr. Fresh oral self-care products, added with acquisition of oral care assets of high ridge brands in April, and higher sales of OTC and nutrition businesses. However, currency movements had a negative impact of $3 million. Net sales at CSCA increased approximately 4%, organically. Moreover, product launches and channel shifting to e-commerce benefited the segment.

CSCI: The segment reported net sales of $339 million, down 2.9% from the year-ago period. The decline in the CSCI segment was due to lower sales of cough and cold OTC brands, and skincare & personal hygiene. Divested businesses and discontinued products hurt sales by $15 million and $3 million, respectively. However, $12 million in favorable currency movements, higher sales from new products, XLS Forte Five weight management brand, and pain and VMS categories provided some respite. While COVID-19 benefited pain and VMS categories, it hurt sales in skincare & personal hygiene category. Organic sales decreased 2.7%.

Rx Segment: Net sales of the segment decreased 8.5% to $211 million. The downside can be attributed to albuterol sulfate recall and discontinued products. Excluding sales from albuterol sulfate and discontinued products from both current and year-ago period, Rx segment sales were down 1.2%, reflecting a faster-than-anticipated recovery in dermatology prescriptions compared to the second quarter of 2020.

2020 Guidance

Perrigo maintained its previous outlook for 2020. The company expects adjusted earnings in the range of $3.95 to $4.15 per share. It anticipates net sales to grow 6-7% year over year in 2020. Organic growth in net sales was expected to be approximately 3%.

Despite the negative impact of COVID-19 related disruptions (12-15 cents per share), albuterol sulfate recall (14 cents per share) and Rosemont Rx business divestment (6 cents per share) on 2020 earnings, the company maintained its guidance, reflecting better-than-expected recoveries across all segments. However, future waves of COVID-19 may lead to new restrictions, like in some European countries, which can hurt sales as well as earnings.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Perrigo has a nice Growth Score of B, a grade with the same score on the momentum front. 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 A. 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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