On February 27, 2023 Perrigo Reported its Fourth Quarter & Fiscal Year 2022 Financial Results From Continuing Operations (Press release, Perrigo Company, FEB 27, 2023, View Source [SID1234627764]).
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Highlights:
Perrigo fiscal year net sales grew 7.6% versus the prior year to $4.5 billion. Constant currency net sales(1) increased 12.8% and organic(2) net sales grew a robust 8.8% compared to the prior year.
Fourth quarter net sales grew 4.6% to $1.2 billion versus the prior year quarter, or 9.6% on a constant currency basis. Both the Consumer Self-Care Americas ("CSCA") and Consumer Self-Care International ("CSCI") segments delivered record quarter net sales, increasing 4.0% and 5.7%, respectively. CSCI constant currency net sales increased 20.5% compared to the prior year quarter.
Fourth quarter GAAP ("reported") gross margin was 33.1%, a 170 basis points improvement compared to the first quarter of 2022 and an increase of 30 basis points compared to the prior year quarter. Perrigo achieved fourth quarter non-GAAP ("adjusted") gross margin of 38.4%, a 500 basis points improvement compared to the first quarter of 2022 and an increase of 350 basis points compared to the prior year quarter.
Fiscal year 2022 reported net earnings (loss) per diluted share ("EPS") was a loss of ($0.97), as compared to a loss of ($0.98) in the prior year period. Adjusted diluted EPS was $2.07, as compared to $2.06 in the prior year. Constant currency adjusted diluted EPS increased 12.1% to $2.31.
Fourth quarter reported EPS was a loss of ($0.09), as compared to net earnings of $0.24 in the prior year quarter, due primarily to higher amortization expenses and acquisition related costs. Adjusted diluted EPS was $0.75, an increase of 25.0% compared to the prior year quarter. Constant currency adjusted diluted EPS was $0.80, an increase of 33.3% compared to the prior year quarter.
Cash and cash equivalents totaled $601 million as of year-end, reflecting a strong cash conversion ratio(3) of approximately 110% for the full year.
In the fourth quarter, Perrigo purchased the Gateway infant formula facility and U.S. & Canadian GoodStart brand from Nestle as the Company continues to play a major role in helping to solve the on-going U.S. infant formula shortage.
Company to hold a virtual Investor Day event tomorrow, February 28, 2023, where management will share the Company’s 2023-2025 strategic plan to ‘Optimize and Accelerate’ performance as well as provide fiscal 2023 guidance (webcast details below).
(1) See attached Appendix for details. Constant currency net sales growth excludes the impact of currency.
(2) See attached Appendix for details. Organic net sales growth excludes the effects of acquisitions and divestitures and the impact of currency.
(3) See attached Appendix for details. Cash conversion ratio defined as cash from operating activities as a percentage of adjusted net income.
Perrigo Company plc (NYSE: PRGO) ("Perrigo" or the "Company"), a leading global provider of Consumer Self-Care Products, reported financial results for the fourth quarter and fiscal year ended December 31, 2022. All comparisons are against the prior year fiscal fourth quarter and fiscal year, unless otherwise noted.
President and CEO, Murray S. Kessler commented, "Perrigo completed its transformation from a healthcare company to a pure play consumer self-care company early in 2022 with the closing of the HRA Pharma acquisition. And it was from the momentum that was created through this transformation that the Company was able to deliver constant currency double-digit top-line and adjusted bottom-line growth in 2022, including all-time net sales records for both our Americas and International businesses, a 500 basis point recovery in adjusted gross margin from the first quarter to the fourth, continued market share gains across the portfolio, and cash conversion of over 100%."
Kessler continued, "Perrigo’s strong year came behind an exceptionally strong fourth quarter that achieved 10% constant currency net sales growth and 33% constant currency adjusted diluted EPS growth along with adjusted gross margin up over 350 basis points versus year ago! I am so proud of how my Perrigo colleagues delivered these results, while at the same time navigating through unprecedented global supply chain disruptions, labor shortages, broad-based inflation, the Russia-Ukraine war, the infant formula shortage, and the continuing impact of the Covid-19 pandemic. It’s a testament to the resiliency and nimbleness of the new Perrigo Consumer Self-Care Company."
Kessler concluded, "Equally impressive is the work our team did to advance the Company to the next phase of its long-term strategic plan, which we will share at our investor day tomorrow. At that virtual meeting, we will share our plan to Optimize and Accelerate the performance of the newly transformed Perrigo in order to deliver outsized profitable growth over the next 3 years."
Refer to Tables I – VI 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 2022 Perrigo Results from Continuing Operations
Fourth Quarter 2022 Net Sales Change Compared to Prior Year
Reported
Net Sales
Foreign
Exchange
Adjustment
Constant
Currency Net
Sales
Net Acquisitions
& Divestitures
Adjustment
Organic
Net Sales
CSCA
4.0 %
0.1 %
4.1 %
(3.6) %
0.5 %
CSCI
5.7 %
14.8 %
20.5 %
(17.2) %
3.3 %
Total Perrigo
4.6 %
5.0 %
9.6 %
(8.1) %
1.5 %
Reported net sales of $1.2 billion increased $50 million, or 4.6%, constant currency net sales increased 9.6% and organic net sales increased 1.5%. Reported net sales were driven by 1) $72 million in constant currency net sales from the acquisition of HRA and $43 million from the acquisition of the U.S. & Canadian GoodStart infant formula brand, 2) $48 million in strategic pricing actions across both Consumer Self-Care segments, and 3) global category growth and U.S. brand and store brand share gains resulting in higher net sales across several Perrigo global product categories, including Upper Respiratory and Skin Care. These drivers also benefited from eCommerce growth and new product sales. Reported net sales growth was partially offset by 1) the impact of unfavorable currency translation of $55 million, 2) $25 million from the divestitures of the Latin American businesses and ScarAway brand, 3) $16 million in lower net sales related to purposeful SKU prioritization to focus capacity on higher margin products as well as the exited distribution of product to Russia, and 4) lower year end inventories at certain U.S. retailers.
Reported gross margin was 33.1%, a 30 basis points increase versus the prior year. Adjusted gross margin expanded 350 basis points versus the prior year quarter to 38.4% as benefits from higher margin acquisitions, strategic pricing actions, and positive mix driven in part by purposeful SKU prioritization to focus capacity on higher margin products in CSCA more than offset the impacts from inflation and productivity challenges.
Fourth quarter reported operating income was $31 million, compared to $47 million in the prior year period, a decline of 34%. Adjusted operating income was $156 million, up $25 million, or 18.6% versus year ago. Constant currency adjusted operating income increased 24.9% driven by higher gross profit flow-through resulting from net sales growth and acquisitions. This positive impact from sales growth and acquisitions was partially offset by 1) a $33 million impact from inflation, including higher freight & distribution expenses, and lower manufacturing productivity, 2) higher operating expenses, driven primarily by acquisitions, and 3) the unfavorable impacts from divested businesses and currency translation.
Reported net loss was $13 million, or ($0.09) per diluted share, compared to reported net income of $32 million, or $0.24 per diluted share, in the prior year period. Excluding certain charges as outlined in Table I, fourth quarter 2022 adjusted net income was $102 million, or $0.75 per diluted share, compared to $82 million, or $0.60 per diluted share, in the prior year. Constant currency adjusted diluted EPS for the quarter was $0.80, an increase of 33.3% compared to prior year. Adjusted diluted EPS included a favorable tax benefit stemming from the release of reserves related to effectively settled positions or closed audit years, which was partially offset by a $0.02 negative impact from accelerating a portion of the estimated $0.18 – $0.20 one-time cost originally expected in 2023 to capture HRA distribution synergies that will benefit the Company in 2023 and beyond.
Fourth Quarter 2022 Business Segment Results from Continuing Operations
Consumer Self-Care Americas Segment
Fourth Quarter 2022 Net Sales Change Compared to Prior Year
Reported
Net Sales
Foreign
Exchange
Adjustment
Constant
Currency Net
Sales
Net Acquisitions
& Divestitures
Adjustment
Organic
Net Sales
CSCA
4.0 %
0.1 %
4.1 %
(3.6) %
0.5 %
Reported net sales increased $30 million, or 4.0%, to a quarterly record of $766 million. Organic net sales increased 0.5%. Net sales growth was driven by acquisitions, strategic pricing actions, total category growth and market share gains versus national brands and other store brand competitors. This growth was partially offset by the impact from divested businesses and a 1.7 percentage point headwind from purposeful portfolio optimization to unlock capacity for higher margin products as part of the Company’s Supply Chain Reinvention Program. Primary category drivers are provided below.
Upper Respiratory
Net sales of $134 million decreased 2.6% due primarily to the launch of Nasonex24HR and higher net sales of non-liquid cough/cold and allergy products, which were more than offset by the divested Latin American businesses, impacting growth by an unfavorable 3.6 percentage points in the quarter.
Nutrition
Net sales of $144 million increased 32.3% due primarily to the acquisition of the U.S. & Canadian GoodStart infant formula brand and strong growth in contract infant formula and oral electrolytes.
Digestive Health
Net sales of $132 million increased 0.8% due primarily to increased manufacturing capacity and demand for Polyethylene Glycol 3350, and new products, including Omeprazole Cool Mint and orange flavored Polyethylene Glycol 3350. Growth in the category was partially offset by an unfavorable 1.8 percentage points impact from the divested Latin American businesses.
Pain & Sleep-Aids
Net sales of $103 million decreased 8.7% due primarily to lower net sales of adult pain products related to purposeful portfolio optimization to unlock capacity for higher margin products as part of the Company’s Supply Chain Reinvention Program and the unfavorable impact of 5.7 percentage points from the divested Latin American businesses. These factors were partially offset by higher demand and shipments for children’s analgesics products.
Oral Care
Net sales of $82 million decreased 2.6% due primarily to purposefully lost distribution of relatively lower margin products at a specific customer, partially offset by share gains resulting from broad strength in demand for the Company’s offerings.
Healthy Lifestyle
Net sales of $80 million decreased 2.2% due primarily to share gains in store brand smoking cessation products, which were more than offset by timing of shipments to customers.
Skin Care
Net sales of $49 million increased 10.8% due primarily to the addition of HRA brands, including Mederma and Compeed, partially offset by the unfavorable impact of 3.2 percentage points from divestitures of the Latin American businesses and ScarAway brand.
Women’s Health
Net sales of $12 million increased 32.6% due primarily to the addition of HRA brands, including ella.
Vitamins, Minerals, and Supplements (VMS) and Other
Net sales of $29 million increased 11.2% due primarily to higher sales of science-based natural products.
Reported gross margin was 30.3%, a 370 basis points increase versus the prior year quarter. Adjusted gross margin expanded 420 basis points versus the prior year quarter to 31.6% as strategic pricing actions, positive mix driven in part by purposeful SKU prioritization to focus capacity on higher margin products, and benefits from higher margin acquisitions more than offset the impacts from inflation and productivity challenges.
Reported operating income was $126 million compared to operating income of $93 million in the prior year quarter. Adjusted operating income increased $34 million to $144 million due primarily to record quarterly gross profit resulting from net sales growth and acquisitions. These factors were partially offset by 1) a $25 million unfavorable impact from inflation, including higher freight & distribution expenses, and lower manufacturing productivity, 2) higher operating expenses, driven primarily by the inclusion of acquisitions, and 3) the impact of divested businesses.
Consumer Self-Care International Segment
Fourth Quarter 2022 Net Sales Change Compared to Prior Year
Reported
Net Sales
Foreign
Exchange
Adjustment
Constant
Currency Net
Sales
Net Acquisitions
& Divestitures
Adjustment
Organic
Net Sales
CSCI
5.7 %
14.8 %
20.5 %
(17.2) %
3.3 %
CSCI reported net sales of $390 million increased $21 million, or 5.7%, constant currency net sales increased 20.5% and organic net sales increased 3.3%. Net sales growth was driven by the acquisition of HRA, strategic pricing actions and maintaining market share in growing categories. Growth was partially offset by unfavorable currency translation, lower sales volumes particularly in the Healthy Lifestyle category, and a 0.8 percentage point headwind from the exited distribution business in Russia. Primary category drivers are provided below.
Skin Care
Net sales of $90 million increased 21.8%, or 40.7% excluding the impact of currency, driven primarily by the addition of HRA brands, including Compeed, new products in the ACO skincare line and higher net sales of anti-parasite offerings that are outpacing strong category growth.
Upper Respiratory
Net sales of $74 million decreased 9.5%, or an increase of 2.3% excluding the impact of currency, led by increased demand for traditional cough/cold products, including Bronchostop, Coldrex and Bronchonolo, stemming from a strong cough/cold and flu season.
Vitamins, Minerals, and Supplements (VMS)
Net sales of $46 million decreased 16.3%, or 5.9% excluding the impact of currency, due primarily to strong performance of VMS products in 2021 stemming from a spike in demand related to the COVID pandemic. This was partially offset by solid performance of Abtei in Germany.
Women’s Health
Net sales of $32 million increased 155.6%, or 191.1% excluding the impact of currency, due primarily to the addition of HRA brands, including ellaOne and NorLevo.
Pain & Sleep-Aids
Net sales of $52 million decreased 2.2%, or an increase of 11.0% excluding the impact of currency, due primarily to higher demand for Solpadeine, an analgesics product.
Healthy Lifestyle
Net sales of $31 million decreased 20.1%, or 9.5% excluding the impact of currency, due primarily to lower category consumption in weight management and smoking cessation, impacting XLS Medical and NiQuitin, respectively.
Oral Care
Net sales of $24 million increased 0.4%, or 13.7% excluding the impact of currency, due primarily to double-digit growth in store brand oral care products.
Digestive Health and Other
Net sales of $41 million increased 36.4%, or 54.6% excluding the impact of currency, due primarily to the addition of the HRA Rare Diseases portfolio in the Other category.
Reported gross margin was 38.6%, a 660 basis points decrease versus the prior year quarter. Adjusted gross margin expanded 210 basis points versus the prior year quarter to 51.8% as benefits from higher margin acquisitions, strategic pricing actions and higher margin new products more than offset the impacts from inflation and productivity challenges.
Reported operating loss was $49 million for the quarter compared to reported operating income of $13 million in the prior year. Adjusted operating income decreased $6 million, or 10.5%, to $54 million. Constant currency adjusted operating income increased 2.3% as higher gross profit flow-through resulting from net sales growth and the addition of HRA were partially offset by higher operating expenses, primarily from the inclusion of HRA, and an unfavorable $8 million impact from inflation and lower manufacturing productivity.
Fiscal Year 2022 Perrigo Results from Continuing Operations
Fiscal Year 2022 Net Sales Change Compared to Prior Year
Reported
Net Sales
Foreign
Exchange
Adjustment
Constant
Currency Net
Sales
Net Acquisitions
& Divestitures
Adjustment
Organic
Net Sales
CSCA
8.6 %
0.1 %
8.7 %
0.8 %
9.5 %
CSCI
5.5 %
15.0 %
20.5 %
(13.0) %
7.5 %
Total Perrigo
7.6 %
5.2 %
12.8 %
(4.2) %
8.8 %
Reported net sales of $4.5 billion increased $313 million, or 7.6%, constant currency net sales increased 12.8% and organic net sales increased 8.8%. Reported net sales were driven by 1) $217 million in constant currency net sales from the acquisition of HRA and $43 million from the acquisition of the U.S. & Canadian GoodStart infant formula brand, 2) $156 million in strategic pricing actions across both Consumer Self-Care segments, 3) global category growth and U.S. brand and store brand share gains resulting in higher net sales across several Perrigo product categories, including Upper Respiratory, Nutrition and Skin Care, and 4) $62 million from an incremental six months of contract manufacturing sales to the divested RX business, which closed on July 6, 2021. These drivers also benefited from eCommerce growth and new product sales. These increases were partially offset by 1) unfavorable impacts from currency translation of $217 million and $86 million from divestitures of the Latin American businesses and ScarAway brand, and 3) lower net sales in the Healthy Lifestyle and VMS categories.
Reported gross margin was 32.7%, a 150 basis points decrease versus the prior year. Adjusted gross margin of 36.2% decreased 30 basis points compared to the prior year as strategic pricing actions and benefits from higher margin acquisitions were more than offset by the impacts from inflation, productivity challenges and product mix.
Fiscal year 2022 reported operating income decreased $332 million to $79 million, compared to $410 million in 2021, due primarily to the absence of $418 million from the Omega arbitration award received in the prior year partially offset by the absence of $173 million of prior year impairment charges primarily related to the divested Latin American businesses. Excluding certain charges as outlined in Table I, adjusted operating income increased $13 million to $492 million in 2022. This increase was driven by higher gross profit flow-through resulting from net sales growth and acquisitions. These increases were partially offset by 1) a $139 million impact from inflation, including higher freight & distribution expenses, and lower productivity, 2) higher operating expenses, driven primarily by acquisitions and employee expenses, and 3) the unfavorable impacts from divested businesses and currency translation.
Reported net loss was $131 million, or a loss of $0.97 per diluted share, versus reported net loss of $131 million, or $0.98 per diluted share, in the prior year. Excluding certain charges as outlined in Table I, fiscal 2022 adjusted net income was $281 million, or $2.07 per diluted share, versus $278 million, or $2.06 per diluted share in the prior year. Constant currency EPS was $2.31, an increase of 12.1% compared to prior year.
Fiscal Year 2022 Business Segment Results from Continuing Operations
Consumer Self-Care Americas Segment
Fiscal Year 2022 Net Sales Change Compared to Prior Year
Reported
Net Sales
Foreign
Exchange
Adjustment
Constant
Currency Net
Sales
Net Acquisitions
& Divestitures
Adjustment
Organic
Net Sales
CSCA
8.6 %
0.1 %
8.7 %
0.8 %
9.5 %
CSCA reported record net sales of $2.9 billion, an increase of $233 million, or 8.6%. Organic net sales increased a strong 9.5%. Net sales growth was driven by strategic pricing actions, total category growth, store brand share gains versus national brands and store brand competitors, and new product launches. Reported net sales also benefited from an incremental six months of contract manufacturing sales to the divested RX business, which closed on July 6, 2021.
Reported gross margin was 26.9%, a 150 basis points decrease versus the prior year. Adjusted gross margin of 28.2% decreased 130 basis points versus the prior year as strategic pricing actions, higher margin new products, and benefits from higher margin acquisitions were more than offset by the impacts from inflation and productivity challenges.
Reported operating income was $366 million in 2022 compared to $207 million in 2021. Adjusted operating income increased $7 million to $440 million as higher gross profit flow-through resulting from net sales growth and acquisitions were partially offset by 1) inflation, including higher freight & distribution expenses, and lower productivity, 2) higher operating expenses, driven primarily by acquisitions, and 3) the impact from divested businesses.
Consumer Self-Care International Segment
Fiscal Year 2022 Net Sales Change Compared to Prior Year
Reported
Net Sales
Foreign
Exchange
Adjustment
Constant
Currency Net
Sales
Net Acquisitions
& Divestitures
Adjustment
Organic
Net Sales
CSCI
5.5 %
15.0 %
20.5 %
(13.0) %
7.5 %
CSCI net sales of $1.5 billion increased $80 million, or 5.5%, constant currency net sales increased 20.5% and organic net sales increased 7.5%. Net sales growth was driven by strategic pricing actions, new product launches and the acquisition of HRA. Growth was partially offset by unfavorable currency translation and a 0.8 percentage point headwind from the exited distribution business in Russia.
Reported gross margin was 43.8%, a 120 basis points decrease versus the prior year. Adjusted gross margin expanded 190 basis points versus the prior year to 51.6% as benefits from higher margin acquisitions, strategic pricing actions and higher margin new products more than offset the impacts from inflation, productivity challenges and unfavorable product mix.
Reported operating loss was $30 million in 2022 compared to income of $36 million in 2021. Adjusted operating income increased $10 million, or 4.8%, to $223 million. Constant currency adjusted operating income increased 22.8% as higher gross profit flow-through resulting from net sales growth and the addition of HRA were partially offset by higher operating expenses, primarily due to the inclusion of HRA and higher employee expenses, and the impact from inflation.
Cash Conversion
Net cash from operations for fiscal 2022 was $307 million, compared to $156 million in the prior year period, resulting in cash conversion as a percentage of adjusted net income of approximately 110%.
February 28, 2023 Virtual Investor Day Event
The Company will hold its virtual Investor Day tomorrow, February 28, 2023, where management will share the Company’s 2023-2025 strategic plan to ‘Optimize and Accelerate’ performance as well as provide fiscal 2023 guidance.
The event will begin at 8:00 a.m. EST. An audio webcast of the Investor Day, including the Q&A session and the accompanying presentation, will be available at View Source A replay will also be available.