On May 8, 2018 Perrigo Company plc (NYSE; TASE: PRGO) reported financial results for the first quarter ended March 31, 2018 (Press release, Perrigo Company, MAY 8, 2018, View Source [SID1234526186]).
Schedule your 30 min Free 1stOncology Demo!
Discover why more than 1,500 members use 1stOncology™ to excel in:
Early/Late Stage Pipeline Development - Target Scouting - Clinical Biomarkers - Indication Selection & Expansion - BD&L Contacts - Conference Reports - Combinatorial Drug Settings - Companion Diagnostics - Drug Repositioning - First-in-class Analysis - Competitive Analysis - Deals & Licensing
Schedule Your 30 min Free Demo!
Additional first quarter reported results: Reported operating margin in the CHC Americas segment was 18.8%.
Perrigo President and CEO, Uwe Roehrhoff commented, "Our unique business model once again delivered results in challenging end markets evidenced by year-over-year first quarter adjusted net income growth of 18.8% and adjusted diluted EPS growth of 20.6%. The CHC Americas team drove net sales growth of 3.0% on a constant currency basis with adjusted operating margin of 21.4% highlighted by a relatively strong cough cold season in the U.S. Net sales in the CHC International segment grew 1.4% on an organic constant currency basis, excluding $22 million in net sales from the exited Russian and unprofitable distribution businesses in 2017, and achieved strong operating results. Our RX Pharmaceuticals ("RX") segment continues to perform in a challenging market. First quarter net sales in RX were slightly lower than the prior year and adjusted operating margin was 39.9% as R&D investments increased versus last year. Finally, our durable platforms once again delivered strong cash flow conversion to adjusted net income, which we utilized to repurchase approximately 1.3 million shares in the quarter."
Mr. Roehrhoff continued, "We remain focused on delivering our consolidated 2018 net sales and adjusted EPS guidance ranges previously communicated. Our consumer-facing businesses are on track to meet their financial goals amid soft consumer trends and we have increased our adjusted operating margin expectation in the CHC International segment due to ongoing operational initiatives. Balanced against this increase, we have adjusted our expectations for the RX segment due primarily to a supply disruption of a key new product, which we are working to bring back to market in the fourth quarter of this year. We are making progress with our value creation roadmap and look forward to discussing the conclusions later this year."
Refer to Tables I – VI at the end of this press release for a reconciliation of non-GAAP measures 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 first quarter of calendar year 2018 were $1.2 billion, which included new product sales of $41 million and discontinued products of $8 million. Net sales grew 1.6% compared to the prior year excluding the year-over-year effect of: 1) $22 million in net sales from the exited Russian and unprofitable distribution businesses in 2017 in the CHC International segment, 2) net sales from the divested Israel API business of $19 million, and 3) favorable foreign currency movements of $45 million.
Reported net income was $81 million, or $0.57 per diluted share versus net income of $72 million, or $0.50 per diluted share, in the prior year. Excluding charges as outlined in Table I, first quarter 2018 adjusted net income was $178 million, or $1.26 per diluted share, versus adjusted net income of $150 million, or $1.05 per diluted share, for the same period last year.
First quarter net sales grew 3.0% on a constant currency basis, driven by higher net sales in the infant nutrition, analgesics and cough cold categories compared to the prior year. These positive drivers, and new product sales of $11 million, were partially offset by lower net sales in the animal health category and discontinued products of $2 million.
The CHCA segment first quarter reported gross profit margin was 33.3%. Adjusted gross profit margin was 35.1%, 60 basis points higher than the prior year driven by stronger volumes in the quarter.
Reported first quarter operating margin was 18.8%. First quarter adjusted operating margin was 21.4%, 120 bps greater than the prior year due to gross margin flow through and lower operating expenses as a percentage to net sales.
Reported net sales increased 7.0% compared to the first quarter of 2017. Excluding $22 million in net sales from the exited Russian and unprofitable distribution businesses in 2017, and favorable foreign currency movements of $43 million, net sales grew 1.4% driven by new product sales of $20 million. Partially offsetting these favorable effects were lower net sales in the cough cold, personal care and analgesics categories in addition to discontinued products of $6 million.
First quarter reported gross margin was a strong 48.5%. Adjusted gross margin increased 350 bps over the previous year to a record 54.2%, driven by improved product mix, new product launches and the continued benefit of insourcing initiatives.
Reported operating margin was 3.7%. Adjusted operating margin expanded 320 bps to 17.0% due to higher gross margin contribution and the timing of growth investments.
Reported net sales in the first quarter were $214 million compared to $217 million last year. New product sales of $10 million were offset by lower net sales of existing products of $12 million, due primarily to price erosion, which was in line with expectations. New product sales were lower than expected due to a supply disruption of a key new product.
Reported gross margin was 45.7%. Adjusted gross margin was 55.3%, 90 bps higher than the previous year driven by product mix.
Reported operating margin was 28.9%. Adjusted operating margin was 39.9% compared to 41.0% in the prior year, due primarily to increased R&D investments.
Corporate Governance
The Perrigo Board of Directors appointed Rolf A. Classon, who has served on Perrigo’s Board since May 2017, as Chairman of the Board, effective May 7, 2018. Laurie Brlas, who has been on the Board since 2003 and has served as Chairman for the last two years, will continue to serve on the Board as an independent director and was appointed as a member of the Audit Committee.
Commenting on his appointment, Mr. Classon said, "I am both excited and humbled for the opportunity to lead Perrigo’s experienced Board. Perrigo’s unique business model, which provides healthcare solutions to patients and families, enables us to execute against our goal of generating value for our shareholders. On behalf of the entire Board and management team, I would like to thank Laurie for her service and guidance as Chairman. Her leadership contributions have been instrumental in focusing the organization on operational excellence, and I look forward to continuing to work alongside her."
Ms. Brlas commented, "I would like to congratulate Rolf on his appointment as Chairman of the Board. This appointment demonstrates good corporate governance and our commitment to shareholder value. I look forward to continuing to work with Rolf and the rest of the Board and leadership team."
Mr. Classon’s previous leadership experience included roles at Hillenbrand Industries, Bayer Healthcare AG, Bayer Diagnostics and Pharmacia Corporation. In addition to extensive experience in varying roles within the pharmaceutical industry, Mr. Classon also currently serves as a director of the boards of Fresenius Medical Care AG and Co and Catalent, Inc.
Guidance
The Company expects calendar year 2018 reported operating income to be in the range of $669 million to $729 million, reported effective tax rate to be approximately 21.3%, and reported diluted EPS to be in the range of $2.90 to $3.30.
The Company reconfirms calendar year 2018 net sales range of $5.0 billion to $5.1 billion, adjusted operating income range of $1.03 billion to $1.09 billion, adjusted effective tax rate of approximately 20.5% and adjusted diluted EPS range of $5.05 to $5.45.
The Company now expects calendar year 2018 net sales for the CHC International segment to be approximately $1.59 billion with an adjusted operating margin of approximately 15.5%. Net sales in the RX segment are now expected to be approximately $1.03 billion with an adjusted operating margin of approximately 40.0%.
Conference Call
The Company will host a conference call at 8:30 a.m. EDT (5:30 a.m. PDT), May 8, 2018. The conference call will be available live via webcast to interested parties in the investor relations section of the Perrigo website at View Source or by phone at 877-248-9413, International 973-582-2737, and reference ID #6366917. A taped replay of the call will be available beginning at approximately 12:00 p.m. (EDT) Tuesday, May 8, until midnight Friday, May 18, 2018. To listen to the replay, dial 800-585-8367, International 404-537-3406, and use access code 6366917.