On March 1, 2022 Perrigo Company plc (NYSE: PRGO) ("Perrigo" or the "Company"), a leading provider of Consumer Self-Care Products, reported financial results for the fourth quarter and fiscal year ended December 31, 2021 (Press release, Perrigo Company, MAR 1, 2022, View Source [SID1234609285]). All comparisons are against the prior year fiscal fourth quarter and fiscal year, unless otherwise noted.
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President and CEO, Murray S. Kessler commented, "In the face of another year of unprecedented pandemic-related challenges, the Perrigo team achieved the Company’s three primary strategic objectives – divesting the generic RX business, reallocating the sale proceeds to acquire a star consumer self-care asset in HRA Pharma, and significantly reducing uncertainty by favorably settling the Irish Tax assessment. Perrigo’s transformation into a focused, consumer-centric Self-Care company is now complete and our focus going forward is on long-term, profitable growth."
Kessler continued, "While our big three strategic objectives were achieved, COVID-19 related business interruption in the form of historically low cough/cold sales early in the year and supply chain disruptions and material price inflation later in the year significantly impacted our 2021 business results. However, sales growth improved sequentially each quarter during 2021 as consumer demand rebounded strongly as the year progressed behind a normalized level of cough, cold and flu illnesses. Actions were also taken to address third quarter supply chain disruptions in the U.S. allowing us to meet strong fourth quarter demand for our customers, albeit at a higher cost. We are entering 2022 with significant topline momentum."
Kessler concluded, "We are also entering 2022 with a higher level of cost inflation and COVID-19 related productivity challenges, which negatively impacted our second half 2021 gross margin. We expect to overcome these headwinds in the second half of 2022, driven in part by increased pricing, higher volumes and productivity gains. Our guidance reflects strong topline growth and depressed margins in the first half of 2022, anticipating that as gross margin pressure eases and as the highly accretive acquisition of HRA closes by mid-year, Perrigo is poised for turbocharged sales and earnings growth. We are excited about our future and remain confident in our consumer Self-Care strategy. I am especially grateful to all of Perrigo’s employees worldwide who have kept the Company running throughout the pandemic, and also want to acknowledge our Ukrainian colleagues and their families. Our hearts and support are with you."
Refer to Tables I – IV at the end of this press release for a reconciliation of non-GAAP adjustments to the current year and prior year periods and additional non-GAAP information. The Company’s reported results are included in the attached Consolidated Statements of Operations, Balance Sheets and Statements of Cash Flows.
Fourth Quarter 2021 Perrigo Results from Continuing Operations
Perrigo net sales for the fourth quarter were $1.1 billion, an increase of $52 million, or 4.9%. Acquisitions accounted for 0.2 percentage points of growth, while unfavorable currency movements offset growth by 0.8 percentage points. Organic net sales growth was 5.5%. Of note, the prior year fourth quarter included six more shipping days than the current quarter.
Net sales in the quarter were driven by 1) the addition of $41 million in contract manufacturing sales to the divested RX business, 2) higher incidences of cough/cold and flu-like illnesses leading to an increase of $38 million in cough/cold sales, 3) higher net sales in the CSCA Nutrition and CSCI Skincare and Personal Hygiene categories, and 4) increased pricing across both Consumer Self-Care segments. These drivers also benefited from new product sales and e-commerce growth. These increases were partially offset by 1) lower net sales in the CSCA Healthy Lifestyle, CSCI VMS and Global Oral Care categories, 2) discontinued products of $11 million, 3) net unfavorable currency movements of $9 million, and 4) lower net sales in the CSCA Mexico business of $7 million.
Fourth quarter reported operating income was $47 million in 2021 compared to $38 million in 2020. Adjusted operating income increased $15 million, or 12.5%, to $132 million in 2021. This increase was driven by 1) higher profit new products, and 2) lower operating expenses, including planned lower advertising & promotion investments, and Project Momentum cost savings. These results were partially offset by $28 million in lower operating efficiencies, including lower volumes resulting in unfavorable plant overhead absorption, higher materials costs and increased freight expenses.
Reported net income was $32.1 million, or $0.24 per diluted share, compared to a net loss of $52.2 million, or $0.39 per diluted share in the prior year period. Excluding certain charges as outlined in Table I, fourth quarter 2021 adjusted net income was $82 million, or $0.60 per diluted share, compared to $64 million, or $0.47 per diluted share, last year due to the factors described above.
Fourth Quarter 2021 Business Segment Results from Continuing Operations
Consumer Self-Care Americas Segment
CSCA fourth quarter net sales of $736 million increased $35 million, or 5.0%. Primary category drivers are provided below.
Upper Respiratory
Net sales of $137 million increased 26.4% due primarily to higher incidences of cough/cold and flu-like illnesses that led to strong demand for cough/cold products, particularly store brand liquid-based cough/cold and pseudoephedrine-based allergy products.
Digestive Health
Net sales of $131 million were flat due primarily to growth in e-commerce, offset by temporary packaging constraints on a specific product, which is expected to alleviate during the second half of 2022, and timing of shipments in antacids.
Pain & Sleep-Aids
Net sales of $113 million increased 3.4% due primarily to strong demand for children’s analgesics products due to higher incidences of cough/cold and flu-like illnesses, partially offset by share declines in the national brand of naproxen sodium, which impacted demand for the store brand version, and lower sales in Mexico.
Nutrition
Net sales of $109 million increased 12.2% due primarily to new product launches in infant formula, including hypoallergenic formula and contract manufacturing formulas. Net sales were also driven by growth in U.S. store brand infant formula and continued growth in the oral electrolytes business, partially offset by lower infant formula sales to Canadian customers.
Oral Care
Net sales of $85 million decreased 1.4% due primarily to delayed receipt of products manufactured outside the U.S., leading to unfulfilled customer orders.
Healthy Lifestyle
Net sales of $83 million decreased 13.9% due primarily to the discontinuation of diabetes products and lost distribution of certain smoking cessation products that annualized in the quarter.
Skincare & Personal Hygiene
Net sales of $53 million decreased 3.4% due primarily to lower sales of creams for topical fungal infections and minoxidil, partially offset by growth in e-commerce.
Vitamins, Minerals, and Supplements ("VMS") and Other
Net sales of $26 million increased 43.6% due primarily to contract manufacturing sales to the divested RX business.
Reported operating income was $93 million in 2021 compared to $117 million in 2020. Adjusted operating income decreased $22 million to $110 million driven by lower operating efficiencies, including lower volumes resulting in unfavorable plant overhead absorption, higher materials costs and increased freight expenses. These factors were partially offset by lower operating expenses, including Project Momentum cost savings.
Consumer Self-Care International Segment
CSCI net sales of $369 million increased $16 million, or 4.6% including a positive impact of 0.6 percentage points from acquisitions partially offset by a negative impact of 2.4 percentage points from unfavorable currency movements. Organic net sales growth was a strong 6.4%. Primary category drivers are provided below.
Skincare & Personal Hygiene
Net sales of $86 million increased 13.1%, or 15.7% excluding the impact of currency, driven primarily by increased market share in the ACO skincare franchise, new product launches in the Sebamed skincare portfolio, and the October 30, 2020 acquisition of three Eastern European OTC Dermatology Brands. This growth was partially offset by lower sales in Australia.
Upper Respiratory
Net sales of $82 million increased 29.7%, or 32.6% excluding the impact of currency, as the higher incidences of cough/cold and flu-like illnesses led to strong demand for cough/cold products, particularly Bronchostop,Coldrex and U.K. store brands. New products also drove growth in the quarter.
VMS
Net sales of $55 million decreased 10.6%, or 8.5% excluding the impact of currency, due primarily to strong performance in the prior year period of vitamin D-based products as well as residual impact from the third quarter 2021 recall of certain batches of Davitamon and Abtei.
Pain & Sleep-Aids
Net sales of $53 million decreased 1.8%, or an increase of 0.4% excluding the impact of currency, due primarily to an increase in U.K. store brand, which was offset by lower demand in Italy for Optalidon, a paracetamol-based analgesics product, and lower sales in Australia.
Healthy Lifestyle
Net sales of $39 million decreased 4.7%, or 2.7% excluding the impact of currency, as benefits from competitor supply issues and growing demand for NiQuitin smoking cessation products were more than offset by lower net sales in the XLS Medical weight management franchise due primarily to lower category consumption.
Oral Care
Net sales of $23 million decreased 19.3%, or 17.6% excluding the impact of currency, due primarily to delayed receipt of product manufactured outside the E.U., leading to unfulfilled customer orders.
Digestive Health and Other
Net sales of $30 million increased 9.4%, or 12.3% excluding the impact of currency, due primarily to new distribution of Kijimea, a medical food for the dietary management of irritable bowel syndrome, and higher sales of other distribution brands.
Reported operating income was $13 million in 2021 compared to an operating loss of $13 million in 2020. Adjusted operating income increased $26 million, or 77.7%, to $60 million due primarily to 1) higher gross profit flow-through resulting from increased net sales, and 2) lower operating expenses, including lower planned advertising & promotion investments, and Project Momentum cost savings.
Fiscal Year 2021 Perrigo Results from Continuing Operations
Perrigo net sales for the fiscal year were $4.1 billion, an increase of $51 million, or 1.2%, including positive impacts of 1.5 and 1.1 percentage points from favorable currency movements and acquisitions, respectively. These gains were partially offset by 0.7 percentage points from divestitures. Organic net sales declined 0.7%, including a negative impact of 1.7 percentage points related to lower net sales of cough/cold products worldwide.
Net sales growth was driven by 1) $61 million from contract manufacturing sales to the divested RX business, 2) $46 million from acquisitions, 3) growth in the CSCI Skincare and Personal Hygiene and VMS categories, and in CSCA Nutrition and Skincare & Personal Hygiene categories, 4) $61 million in net favorable currency movements, and 5) increased pricing across both Consumer Self-Care segments. These drivers also benefited from new product sales and strong e-commerce growth. These increases were partially offset by 1) a decline in net sales of $68 million from cough/cold products, 2) discontinued products of $38 million, 3) $29 million from divestitures, and 4) lower net sales in the CSCA Healthy Lifestyle category.
Fiscal year 2021 reported operating income increased $145 million to $410 million, compared to $265 million in 2020. Adjusted operating income decreased $61 million to $479 million in 2021. This decrease was driven by 1) $80 million in lower operating efficiencies, including lower volumes resulting in unfavorable plant overhead absorption, higher materials costs and increased freight expenses, and 2) lower gross profit flow-through, principally from the decline in cough/cold sales. These results were partially offset by 1) the net impact from acquisitions and divestitures, and 2) lower operating expenses, including lower advertising & promotion investments compared to the prior year, and Project Momentum cost savings.
Reported net loss was $131 million, or a loss of $0.98 per diluted share, versus reported net income of $44 million, or $0.32 per diluted share, in the prior year. Excluding certain charges as outlined in Table I, fiscal 2021 adjusted net income was $278 million, or $2.06 per diluted share, versus $320 million, or $2.33 per diluted share, last year due to the factors described above.
Fiscal Year 2021 Business Segment Results from Continuing Operations
Consumer Self-Care Americas Segment
Consumer Self-Care Americas reported net sales of $2.7 billion were flat compared to the prior year, including a positive impact of 0.9 percentage points from acquisitions. Organic net sales declined 1.1%, including a negative impact of 1.4 percentage points due to lower net sales of cough/cold products compared to the prior year. Global supply chain disruptions, including a lack of truck drivers in the U.S. and record backups at global shipping ports, dampened net sales by an additional 1.4 percentage points. Primary category drivers are provided below.
Upper Respiratory
Net sales of $483 million decreased 4.5% due primarily to the historically weak 2020/21 cough/cold season and the recall of an allergy product in the third quarter of 2021. Increased pricing and new products partially offset these declines.
Digestive Health
Net sales of $475 million increased 0.8% due primarily to sales of ‘national brand better’ products, new products and e-commerce. These drivers were mostly offset by competition for a proton pump inhibitor and the re-launch of a national brand acid reducer, which gained market share from competing store brand products.
Pain & Sleep-Aids
Net sales of $405 million decreased 6.7% due primarily to the historically weak 2020/21 cough/cold season, partially offset by higher sales of store brand diclofenac 1%.
Nutrition
Net sales of $402 million increased 3.5% driven by new products, including in the infant formula contract manufacturing business, and continued growth in oral electrolytes. These drivers were partially offset by lower sales of U.S. store brand infant formula due primarily to supply constraints earlier in the year.
Oral Care
Net sales of $312 million increased 8.2% due primarily to one quarter of inorganic growth stemming from the April 2020 acquisition of Dr. Fresh and strong growth in the base business during the first half of 2021. These drivers were partially offset by delayed receipt of product manufactured outside the U.S. in the second half, leading to unfulfilled customer orders.
Healthy Lifestyle
Net sales of $298 million decreased 15.5% due primarily to the discontinuation of diabetes products and lost distribution of certain smoking cessation products that annualized in the fourth quarter.
Skincare & Personal Hygiene
Net sales of $219 million increased 9.3% due primarily to higher sales in the minoxidil franchise and the Scaraway brand, partially offset by lower sales of creams for topical fungal infections.
VMS and Other
Net sales of $99 million increased 90.4% due primarily to contract manufacturing sales to the divested RX business.
Reported operating income was $207 million in 2021 compared to $465 million in 2020. Adjusted operating income decreased $94 million to $434 million driven by lower operating efficiencies, including lower volumes resulting in unfavorable plant overhead absorption, higher materials costs and increased freight expenses. These factors were partially offset by lower advertising and promotion expenses and Project Momentum cost savings.
Consumer Self-Care International Segment
CSCI net sales of $1.4 billion increased $50 million, or 3.6%, including positive impacts of 4.0 percentage points and 1.6 percentage points from favorable currency movements and acquisitions, respectively. These gains were partially offset by 2.1 percentage points from divestitures. Organic net sales growth was flat, including a negative impact of 2.2 percentage points due to lower net sales of cough/cold products compared to the prior year. Primary category drivers are provided below.
Skincare & Personal Hygiene
Net sales increased 12.1%, or 7.2% excluding the impact of currency, to $394 million driven primarily by the October 30, 2020 acquisition of three Eastern European OTC Dermatology Brands, increased market share in the ACO skincare franchise and new product launches in the Sebamed skincare portfolio. These drivers were partially offset by a decline in the anti-parasite portfolio and lower sales in Australia.
Upper Respiratory
Net sales of $226 million decreased 11.3%, or 13.7% excluding the impact of currency, due primarily to the historically weak 2020/21 cough/cold season, partially offset by new products.
VMS
Net sales of $217 million increased 8.2%, or 4.0% excluding the impact of currency, due primarily to a strong performance of Granufink, herbal medicines to keep bladder function healthy, and the launch of the Probify line of probiotics.
Pain & Sleep-Aids
Net sales of $202 million increased 6.0%, or 2.1% excluding the impact of currency, as higher sales of U.K. store brand and Tiger Balm were partially offset by declines in other pain products due primarily to the historically weak 2020/21 cough/cold season.
Healthy Lifestyle
Net sales of $179 million increased 8.4%, or 3.7% excluding the impact of currency, as growing demand for NiQuitin smoking cessation products and higher net sales in Australia were partially offset by lower net sales in the XLS Medical weight management franchise due primarily to lower category consumption.
Oral Care
Net sales of $96 million decreased 2.0%, or 5.9% excluding the impact of currency, due primarily to delayed receipt of product manufactured outside the E.U. in the second half of the year, leading to unfulfilled customer orders.
Digestive Health and Other
Net sales of $131 million decreased 2.2%, or 6.1% excluding the impact of currency, due primarily to lower distribution sales in the E.U. partially offset by higher sales in Australia.
Reported operating income was $36 million in 2021 compared to $32 million in 2020. Adjusted operating income increased $13 million, or 6.7%, to $212 million as lower operating expenses, including lower planned advertising & promotion investments compared to the prior year and Project Momentum cost savings, more than offset unfavorable product mix.
Fiscal 2022 Outlook
Based on current currency exchange and spot rates, and excluding expected benefits from the acquisition of HRA Pharma, the Company expects:
Net sales growth of 3.5% to 4.5%, inclusive of negative impacts of approximately 2.0 percentage points from the planned divestiture of the Latin American businesses and 1.5 percentage points from adverse currency movements,
Organic net sales growth of 7.0% to 8.0%,
First half margin compression and second half margin expansion,
An adjusted effective tax rate of approximately 23%,
Adjusted diluted EPS of $2.10 to $2.30,
Cash flow from operations as a percentage of adjusted net income of 95% to 105%.
Assuming a June 30, 2022 closing and based on current currency exchange rates, the Company expects the acquisition of HRA Pharma to add:
Net sales of $170 – $190 million and adjusted diluted EPS of approximately $0.30 in 2022.
The Company cannot reconcile its expected adjusted diluted earnings per share to diluted earnings per share under "Fiscal 2022 Outlook" without unreasonable effort because certain items that impact net income and other reconciling metrics are out of the Company’s control and/or cannot be reasonably predicted at this time.