On February 27, 2020 Perrigo Company plc (NYSE; TASE: PRGO), a leading global provider of "Quality, Affordable Self-Care Products", reported financial results for the fourth quarter and fiscal year ended December 31, 2019 (Press release, Perrigo Company, FEB 27, 2020, View Source [SID1234554868]).
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!
President and CEO Murray S. Kessler commented, "We are pleased with our finish to fiscal 2019 and the substantial accomplishments we made during the first year of Perrigo’s multi-year business transformation into a Consumer Self-Care Company. Revenue growth was our top priority as demonstrated by our organic and inorganic net sales increase. We are particularly pleased to have driven a sequential acceleration in growth each quarter of the year culminating in a record fourth quarter for our Consumer Self-Care Americas net sales. We also made key strategic investments in innovation programs, bolt-on acquisitions and structural changes to fuel long-term profitable growth. These efforts helped us generate annual profitability in line with our expectations."
Kessler continued, "While we still have a lot of work ahead of us, our 2019 results reinforce our view that our Consumer Self-Care strategy is the right one to build shareholder value by delivering profitable and sustainable growth over the long-term."
Key Fourth Quarter Financial Highlights
GAAP ("reported") consolidated fourth quarter net sales were $1.3 billion, an increase of 10.7% compared to the prior year quarter. Adjusted net sales(1) increased 13.4% compared to the prior year quarter, excluding currency(2).
Worldwide Consumer fourth quarter reported net sales increased 12.7% compared to the prior year quarter. Worldwide Consumer adjusted net sales increased 16.4% versus the fourth quarter of 2018, excluding currency.
Consumer Self-Care Americas ("CSCA") achieved record fourth quarter reported net sales of $711 million, or growth of 15.2% versus the prior year quarter; Consumer Self-Care International ("CSCI") fourth quarter reported net sales grew 8.2% versus the prior year quarter or 11.0% excluding currency.
Reported diluted loss per share for the fourth quarter of 2019 was $0.14 per diluted share as compared to diluted earnings per share ("EPS") of $0.60 in the prior year quarter.
Adjusted diluted EPS for the fourth quarter 2019 increased 9.3% versus the fourth quarter of 2018 to $1.06 per diluted share, as compared to $0.97 per diluted share in the prior year quarter.
Key Fiscal Year 2019 Financial Highlights
Reported consolidated full year reported net sales were $4.8 billion, an increase of 2.2% compared to the prior year. Adjusted net sales increased 6.1% for the year, excluding currency.
Worldwide Consumer reported net sales increased 1.5% for the full year. Adjusted net sales increased 6.3%, excluding currency. Worldwide Consumer adjusted organic net sales(3) were up 2.2% for the year.
Reported diluted EPS for fiscal 2019 was $1.07 per diluted share compared to $0.95 per diluted share in fiscal 2018.
Adjusted diluted EPS for fiscal 2019 was $4.03 per diluted share compared to $4.55 per diluted share in fiscal 2018.
Consumer Products Category Realignment
The Company realigned its consumer product categories to standardize reporting and evaluation across its Worldwide Consumer businesses. These updates have no impact on the Company’s net sales and are provided by quarter for fiscal 2019 in the appendix attached to this release.
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. Worldwide Consumer includes the Consumer Self-Care Americas and Consumer Self-Care International segments, as well as corporate unallocated.
Fourth Quarter 2019 Results
Consolidated Fourth Quarter 2019 Results Versus Fourth Quarter 2018
Consolidated reported net sales increased 10.7% to $1.3 billion. Adjusted net sales excluding currency increased 13.4% compared to the fourth quarter 2018. The increase was driven by increased demand for existing products, the addition of Ranir and new product sales of $58 million, partially offset by normal levels of pricing pressure and $9 million in discontinued products. Adjusted organic net sales were up 7.0%.
Reported net loss was $19 million, or $0.14 per diluted share, versus net income of $82 million, or $0.60 per diluted share in the prior year period, due primarily to non-cash impairment charges of $142 million primarily in the RX segment. Excluding certain charges as outlined in Table I, fourth quarter 2019 adjusted net income was $145 million, or $1.06 per diluted share, versus $132 million, or $0.97 per diluted share, for the same period last year. The adjusted diluted EPS increase was due primarily to strong sales growth in the Worldwide Consumer businesses and the Ranir acquisition accretion, partially offset by a decline in the Rx business and restored employee incentive compensation.
Worldwide Consumer Self-Care Fourth Quarter 2019 Results Versus Fourth Quarter 2018
Worldwide Consumer reported net sales for the fourth quarter of 2019 were $1.1 billion, an increase of 12.7%. Adjusted net sales increased 16.4%, excluding currency. Adjusted organic net sales were up 8.3%.
Fourth quarter reported gross profit margin was 36.8%. Adjusted gross profit margin of 39.3% was 40 basis points higher as greater operational efficiencies and the absence of the CSCA infant formula facility start-up issue in the prior year quarter were partially offset by the addition of Ranir oral self-care products, which have a lower gross margin profile than the existing portfolio, and product mix across all consumer businesses.
Reported operating margin was 8.0%. Adjusted operating margin was 14.3%, or 250 basis points higher due primarily to operating leverage on gross margin flow-through and the addition of Ranir, which has a relatively higher operating margin profile than the existing portfolio in the quarter. These were partially offset by restored employee incentive compensation.
CSCA Fourth Quarter 2019 Results Versus Fourth Quarter 2018
Consumer Self-Care Americas reported net sales increased 15.2% to $711 million, which included $52 million in sales attributable to Ranir. Adjusted net sales increased 19.4%, excluding currency. Adjusted organic net sales were up 10.6%.
The OTC business delivered record fourth quarter net sales driven by 1) overall OTC category growth, 2) robust growth in e-commerce, 3) increased store brand penetration market-wide versus national brands of 70 basis points in the categories we compete in, and 4) Perrigo market share gains from store brand competitors due to greater distribution of existing and new products.
Growth in the nutrition business was driven by 1) a new store brand infant formula launch in the quarter at a major retailer, 2) store-brand penetration gains versus national brands, 3) greater infant formula contract pack sales due primarily to a pre-build of inventory in preparation for the production of a new infant formula launch in 2020, and 4) the absence of the infant formula facility start-up issue, which disrupted infant formula shipments in 2018.
Fourth quarter reported gross profit margin was 32.8%. Adjusted gross profit margin of 33.8% was 190 basis points higher due primarily to favorable OTC product mix, the absence of the infant formula facility start-up issue in the prior year quarter and lower cost of materials. These benefits were partially offset by higher direct labor costs.
Reported operating margin was 18.4%. Adjusted operating margin increased 80 basis points to 20.4%, as gross margin flow-through was partially offset by higher investments in R&D and selling to drive future sales, and restored employee incentive compensation.
CSCI Fourth Quarter 2019 Results Versus Fourth Quarter 2018
Consumer Self-Care International reported net sales increased 8.2% to $356 million. Excluding currency movements of $9 million, net sales were higher by 11.0%. Adjusted organic net sales grew 4.3%.
Net sales growth was due primarily to 1) $22 million of net sales from Ranir, 2) strong new product sales of $23 million driven by the launch of XLS-Medical Forte 5 and new products in the Phytosun naturals portfolio, and 3) improved performance in the U.K. store brand business.
Reported gross margin was 44.8%. Adjusted gross margin of 50.4% declined 180 basis points due primarily to improved performance in the U.K. store brand business and the addition of Ranir oral self-care products, both of which have relatively lower gross margins than the overall CSCI portfolio. These were partially offset by improved operating efficiencies.
Reported operating margin was 0.4%. Adjusted operating margin of 13.9% improved 100 basis points due primarily to a relatively higher operating margin in Ranir, improved performance in the U.K. store brand business and lower advertising and promotion expense. These were partially offset by increased investments in the sales force and innovation.
Prescription Pharmaceuticals ("RX") Fourth Quarter 2019 Results Versus Fourth Quarter 2018
RX reported net sales increased 2.8% to $256 million due primarily to higher volumes of existing products and new product sales of $19 million, partially offset by pricing pressure and discontinued products of $6 million.
Reported gross margin was 34.5% and adjusted gross margin was 43.2%. The 580 basis point decline in adjusted gross margin was due primarily to testosterone gel 1.62%, which launched in the prior year with 180-day market exclusivity and product mix.
Reported operating margin of (36.1%) was due primarily to impairment charges of $132 million related to a combination of industry and market factors and changes in long-range revenue forecasts for several products. Adjusted operating margin of 24.0% was lower due primarily to 1) gross margin flow-through, 2) generic ProAir pre-commercialization R&D costs, and 3) restored employee incentive compensation.
Fiscal 2019 Results
Consolidated Fiscal 2019 Results Versus Fiscal 2018
Consolidated reported net sales were $4.8 billion for the full year, an increase of 2.2% compared to the prior year. Adjusted net sales increased 6.1%, excluding currency. This increase was driven by the addition of Ranir, new product sales of $230 million and increased demand for existing products, partially offset by normal levels of competitive pricing pressure and $59 million in discontinued products. Consolidated adjusted organic net sales were up 2.8%.
Reported net income was $146 million, or $1.07 per diluted share, versus $131 million, or $0.95 per diluted share, in the prior year. Excluding certain charges as outlined in Table I, fiscal 2019 adjusted net income was $550 million, or $4.03 per diluted share, versus $629 million, or $4.55 per diluted share, for 2018. Strong performance in the consumer businesses and the addition of Ranir were more than offset by a decline in the Rx business as well as 1) $0.32 per diluted share from restored employee incentive compensation and the absence of an insurance recovery in the prior year period, 2) $0.08 per diluted share from a higher adjusted effective tax rate, and 3) currency impact of $0.07 per diluted share.
Worldwide Consumer Self-Care Fiscal 2019 Results Versus Fiscal 2018
Worldwide Consumer reported net sales for fiscal 2019 were $3.9 billion, an increase of 1.5% compared to the prior year. Excluding currency movements, adjusted net sales increased 6.3%. Adjusted organic net sales were up 2.2%.
Fiscal 2019 reported gross profit margin was 37.2%. Adjusted gross profit margin of 40.3% was 120 basis points lower due primarily to 1) the addition of Ranir, 2) the impact of foreign currency translation, and 3) changes in the global mix associated with store brand products growing at a faster rate than the company’s branded products.
Reported operating margin was 5.2%. Adjusted operating margin was 14.1%, or 140 basis points lower as operating leverage on gross margin flow-through and savings from Project Momentum were more than offset by restored employee incentive compensation and transformation investments.
CSCA Fiscal 2019 Results Versus Fiscal 2018
Consumer Self-Care Americas reported net sales increased 3.2% to $2.5 billion, which included $106 million in sales attributable to Ranir. Excluding currency movements, adjusted net sales increased 7.1%. Adjusted organic net sales were up 2.4%.
Sales growth was driven primarily by 1) the acquisition of Ranir, 2) OTC category growth, 3) market share gains from store brand competitors of 80 basis points leading to new product sales of $36 million and improved product mix, 4) robust growth in OTC e-commerce, and 5) increased market-wide OTC store brand penetration versus national brands of 50 basis points in the categories we compete in.
This growth was partially offset by 1) purposefully exited non-strategic businesses, 2) lower infant formula contract pack sales due to several branded customers exiting the category, 3) lower net sales in Mexico, and 4) normal levels of competitive pricing pressure.
Reported gross profit margin was 32.1%. Adjusted gross profit margin of 33.6% was 70 basis points lower due primarily to the exited animal health business and product mix.
Reported operating margin was 16.6%. Adjusted operating margin of 19.7% was 110 basis points lower due primarily to increased investments in R&D and selling to drive future sales and restored employee incentive compensation.
CSCI Fiscal 2019 Results Versus Fiscal 2018
CSCI reported net sales decreased 1.2% to $1.4 billion. Excluding currency movements of $87 million, adjusted net sales were higher by 5.1%. Adjusted organic net sales grew 1.9%.
Adjusted net sales growth was due primarily to 1) $45 million of net sales from Ranir, 2) strong full-year new product sales of $108 million driven by the launch of XLS-Medical Forte 5 and new products in the Phytosun naturals portfolio, and 3) solid performance in the U.K. store brand business.
Reported gross margin was 46.3%. Adjusted gross margin of 52.4% declined 160 basis points due primarily to the addition of Ranir and improved performance in the U.K. store brand business, both of which have relatively lower gross margins than the overall portfolio. These were partially offset by improved operating efficiencies.
Reported operating margin was 1.4%. Adjusted operating margin of 15.7% declined 60 basis points as gross margin flow-through and transformation investments more than offset the relatively higher operating margin in Ranir and lower advertising and promotion expense.
RX Fiscal 2019 Results Versus Fiscal 2018
RX reported net sales increased 5.1% to $968 million due primarily to higher volumes of existing products and new product sales of $86 million, partially offset by pricing pressure and discontinued products of $42 million.
Reported gross margin was 34.6% and adjusted gross margin was 43.6%. The 600 basis point decline in adjusted gross margin was due primarily to price reduction for testosterone gel 1.62%, due to the expiration of market exclusivity, which was expected, and product mix.
Reported operating margin of 0.3% was impacted by the impairment charges discussed above. Adjusted operating margin of 27.3% was lower due primarily to gross margin flow-through and generic ProAir pre-commercialization R&D costs.
Fiscal 2020 Outlook
Kessler concluded, "In 2020, we expect to deliver net sales growth of approximately 6% to 7%, which is above our long-term 3% goal. As planned from the beginning, we will also continue to make the necessary investments in our business to sustain this growth over the long-term while concurrently setting the stage for 5% adjusted operating profit growth in Year 3 of the transformation plan and beyond."
The Company expects fiscal 2020 net sales growth of 6% to 7%, with organic net sales growth of approximately 3%. Adjusted diluted EPS is expected to be between $3.95 to $4.15, which includes $50 million in transformational investments.
The Company cannot reconcile its expected adjusted diluted earnings per share to diluted earnings per share under "Fiscal 2020 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.
See attached Appendix for reconciliation of adjusted (non-GAAP) to reported (GAAP) financial measures.
(1) Adjusted net sales growth excludes the exited animal health and infant foods businesses from CSCA and Worldwide Consumer in both periods, and reverses certain product returns relating to the voluntary global market withdrawal of ranitidine in the third quarter of 2019, only.
(2) Where noted, comparisons of reported net sales or adjusted net sales to a prior period are made "excluding currency". This means that foreign currency sales recorded in 2019 are converted to U.S. dollars using the average exchange rate in effect during 2018.
(3) Adjusted organic net sales growth excludes the 2019 acquisition of Ranir from CSCA, CSCI and Worldwide Consumer, as well as the exited animal health and infant foods businesses from CSCA and Worldwide Consumer in both periods, and reverses certain product returns relating to the voluntary global market withdrawal of ranitidine in the third quarter of 2019. In addition, comparisons of adjusted organic net sales are made excluding currency as described in Note (2), above.