On August 8, 2019 Perrigo Company plc (NYSE; TASE: PRGO) reported financial results for the second quarter ended June 29, 2019 (Press release, Perrigo Company, AUG 8, 2019, View Source [SID1234538431]).
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President and CEO Murray S. Kessler commented, "The Perrigo transformation to a consumer self-care company, discussed in depth on our Investor Day on May 9, is now in the critically important execution phase. While we are in the early stages, significant progress was made during the second quarter, as evidenced by robust store-brand OTC sales in the USA, solid branded new product sales internationally, a return to strong customer service levels in the USA and the finalization of the Project Momentum $100 million cost-savings program road map. The company also closed on the Ranir (market leading private label oral self-care company) acquisition and the Perrigo Animal Health Division divestiture shortly after quarter-end."
Kessler continued, "This marks the third consecutive quarter Perrigo has delivered on our stated financial goals, which we believe is integral to the re-establishment of management credibility. Transformation activities will help Perrigo return to year-over-year growth for the balance of the year."
Refer to Tables I – V 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 Condensed Consolidated Statements of Operations, Balance Sheets and Statements of Cash Flows.
Reported net sales for the second quarter of calendar year 2019 were approximately $1.15 billion.
Adjusted net sales increased 1% to $1.13 billion, excluding unfavorable currency movements of $24 million, the held-for-sale animal health business of $32 million and $10 million from the exited infant foods business. New product sales of $65 million and increased demand-driven sales in the Consumer Self-Care Americas and RX businesses were partially offset by lower sales in the Consumer Self-Care International business. Discontinued products of $27 million, included $10 million from the exited infant foods business.
Reported net income was $9 million, or $0.07 per diluted share, versus $36 million, or $0.26 per diluted share, in the prior year period. Excluding certain charges as outlined in Table I, second quarter 2019 adjusted net income was $117 million, or $0.86 per diluted share versus $169 million, or $1.22 per diluted share, for the same period last year.
Consumer Self-Care Americas reported net sales of $582 million were 2.5% lower than the prior year period.
Adjusted net sales of $560 million were approximately 1% higher than the prior year period, excluding the held-for-sale animal health business and exited infant foods business. Within CSCA, net sales for the core OTC business, which represent approximately 80% of CSCA net sales, increased more than 4% compared to the prior year period driven by an extended cough/cold season, a good start to the allergy season, as well as increased sales in the gastrointestinal and smoking cessation categories. CSCA also benefited from new product sales of $8 million in the quarter, led by the store brand equivalent of Imodium Multi-Symptom Relief and cherry ice mini lozenge.
Sales growth was partially offset by 1) lower net sales in the infant nutrition category primarily related to lower infant formula contract manufacturing sales as a number of branded customers made the strategic decision to exit the category, 2) discontinued products of $11 million primarily related to the exit of the infant foods business, and 3) an infant formula recall at a leading customer.
Based on the most recent 52-weeks U.S. MULO data, total OTC retail market dollars grew 1.1% compared to the same 52-weeks a year ago. For the same period, store brand retail dollars grew 1.7%, outpacing national brand growth of 0.8%, resulting in one point of share gain for store brands. Over the most recent 13 weeks, total OTC retail market dollar growth accelerated to 3.5% versus a year ago, led by total store brand retail dollar growth of 3.8%. This acceleration was driven by the extended cough/cold season and good start to the allergy season.
Second quarter reported gross profit margin was 33.8%. Adjusted gross profit margin was 34.0%, or 170 basis points lower than the prior year period, due primarily to the held-for-sale animal health business, which had a relatively higher gross margin, lower net sales from infant formula contract manufacturing and greater operating inefficiencies versus last year. Sequentially, versus first quarter, adjusted gross profit margin increased 150 basis points due primarily to favorable product mix and higher OTC sales volumes.
Reported operating margin was 18.5%. Adjusted operating margin was 20.3%, or 130 basis points lower than the prior year period, due primarily to gross margin flow-through and higher R&D investments to fuel growth. Sequentially, adjusted operating margin increased 200 basis points due to gross profit flow-through and lower SG&A expenses.
Consumer Self-Care International reported net sales were $328 million, or 8.5% lower than the prior year period. On a constant currency basis, net sales were lower by 1.8% compared to the prior year period. New product sales of $30 million were driven primarily by the successful launch of XLS Forte 5, a next generation weight loss product within the lifestyle category, and strong performance by the ACO brand in the dermatological category. Net sales were higher versus last year in the distribution business and analgesics portfolio.
These were more than offset by 1) unfavorable currency movements of $24 million, 2) lower net sales in France due primarily to a restructuring of the sales force to improve efficiency and long-term profitability, 3) lower net sales in the cough/cold and anti-parasites categories, due primarily to relatively weaker seasonal effects across Europe, and 4) discontinued products of $6 million.
According to IRI/InQvia (IMS) data, the markets in which the Company competes have produced low to mid-single-digit growth over the last 12 months, with CSCI maintaining its overall market share.
Reported and adjusted gross margins decreased 100 basis points compared to the prior year period as new product innovations were more than offset by unfavorable product mix, due primarily to the sales force restructuring in France.
Reported operating margin was (0.9)% while the adjusted operating margin was 15.3%. Operating expenses were lower compared to the prior year period due primarily to timing of advertising and promotional investments.
RX reported net sales were $239 million in the quarter, or 3.4% higher than the prior year period, due primarily to new product sales of $27 million, improved customer service levels and moderating pricing pressure in the generics industry. Discontinued products were $9 million.
Reported gross margin was 32.8%. Adjusted gross margin was 41.7%, or 830 basis points lower than the prior year period, due primarily to pricing pressure and higher sales volumes of relatively lower margin authorized generic products.
Reported operating margin was 6.1%. Adjusted operating margin was 27.4%, or 670 basis points lower than the prior year period, due primarily to adjusted gross margin flow-through partially offset by lower administrative expenses.
Outlook
The Company reaffirms its adjusted diluted EPS to be in the range of to $3.75 to $4.05 per share. Guidance includes the Ranir acquisition and Animal Health divestiture.
Potential upside to this adjusted EPS range includes contributions from a launch of the generic version of ProAir (+ $0.00 – $0.10 cents) and/or incremental cost savings from Project Momentum of up to $0.05.
The Company expects an acceleration of net sales growth in the second half of the year driven by Ranir (excluding animal health, exited infant foods and impact of currency).