On February 27, 2019 Perrigo Company plc (NYSE; TASE: PRGO) reported financial results for the fourth quarter and calendar year ended December 31, 2018 (Press release, Perrigo Company, FEB 27, 2019, View Source [SID1234533845]).

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Perrigo President and CEO Murray S. Kessler commented, "While 2018 was a difficult year for Perrigo, significant progress was made in the fourth quarter against the Company’s transformation plans. Market share in our consumer businesses were stable for the year, and the Company met its updated full-year 2018 guidance expectations despite an unusual equipment start-up issue at one of our facilities that resulted in a fourth quarter adjusted EPS headwind of approximately $0.08. It was also encouraging to see a meaningful, sequential improvement in the RX segment during the fourth quarter, as downward pricing pressure eased."

Kessler continued, "While the Company is facing a number of challenges, I am pleased with the rapid progress our team is making on its transformation plans and evolution from a healthcare company to a consumer self-care company. We are continuing to make significant progress with the separation of the RX business and recently received the $250 million milestone payment related to Tysabri."

Kessler concluded, "We look forward to sharing our strategy as well as providing demonstrable progress at our Investor Day presentation on May 9, 2019 in New York City. Investors can expect to see the Company’s plans for portfolio reconfiguration, capacity and technology investments, innovation initiatives, cost savings plans to help fuel growth, capital allocation plans, organizational effectiveness initiatives and calendar 2019 guidance at that time. While there is much work to do, I remain excited and confident in our ability to recapture the ‘Perrigo Advantage’ and bring the Company back to profitable and sustainable growth."

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.

Calendar year 2017 net sales have been adjusted to exclude approximately $21 million of sales attributable to the divested Israel API business.

Reported net sales for calendar year 2018 were approximately $4.7 billion, which included new product sales of $170 million, partially offset by discontinued products of $66 million. Adjusted net sales decreased 4.6% on a constant currency basis. Unfavorable currency movements impacted net sales by $34 million.

Reported net income was $131 million, or $0.95 per diluted share, versus $120 million, or $0.84 per diluted share, in the prior year. Excluding charges as outlined in Table I, calendar year 2018 adjusted net income was $629 million, or $4.55 per diluted share, versus $703 million, or $4.93 per diluted share, last year.

Fourth Quarter Results

Fourth quarter 2017 net sales have been adjusted to exclude approximately $4 million of sales attributable to the divested Israel API business.

Net sales for the fourth quarter of calendar year 2018 were approximately $1.2 billion, which included new product sales of $51 million, partially offset by discontinued products of $16 million. Adjusted net sales decreased 5.1% on a constant currency basis. Unfavorable currency movements impacted net sales by $18 million.

Reported net income was $82 million, or $0.60 per diluted share, versus $73 million, or $0.52 per diluted share, in the prior year. Excluding charges as outlined in Table I, fourth quarter 2018 adjusted net income was $132 million, or $0.97 per diluted share, versus $180 million, or $1.28 per diluted share, for the same period last year.

CHC Americas segment net sales were down 4.1% compared to last year. Net sales in the analgesics and smoking cessation categories coupled with new product sales of $10 million, were more than offset by lower net sales in the animal health and nutrition categories. Discontinued products in the quarter were $10 million, of which $6 million related to the animal health business. Excluding the animal health business, CHC Americas net sales decreased approximately 1.9% on a constant currency basis.

CHC Americas’ fourth quarter reported gross profit margin was 29.5%. Adjusted gross profit margin was 30.4% or 560 bps lower than the prior year. The majority of this decline was due to an unusual equipment startup issue at one facility, higher input costs and greater operating inefficiencies, including service-related challenges.

Reported fourth quarter operating margin was 16.4%. Fourth quarter adjusted operating margin was 18.0%, lower than the prior year due primarily to adjusted gross margin flow through, partially offset by lower administrative expenses.

CHC International net sales were relatively flat, excluding $2 million in net sales from exited businesses in 2017 and unfavorable foreign currency movements of $17 million. Net sales in the diagnostics and analgesics categories, in addition to new product sales of $19 million, were mostly offset by lower net sales in the lifestyle and cough cold categories. The absence of net sales from discontinued products was $2 million.

Reported and adjusted gross margin decreased 110 bps versus a year ago due primarily to less favorable product mix.

Reported operating margin was (0.5)%. Adjusted operating margin decreased 240 basis points to 12.9%. Growth investments in advertising and R&D increased approximately 350 bps as a percentage of net sales compared to prior year. These increases were partially offset by lower selling and administrative expenses.

RX net sales were $222 million in the quarter, lower than the prior year due primarily to industry dynamics, including pricing pressure, supply constraints in a few products and discontinued products of $4 million. New product sales were $22 million.

Reported gross margin was 45.5%. Adjusted gross margin was 54.8%, or 160 bps higher than the same quarter last year, driven primarily by new product launches.

Reported operating margin was 30.5%. Adjusted operating margin was 39.2%, or 110 bps higher than the prior year due primarily to adjusted gross margin flow through while maintaining R&D dollar investments for growth.

Conference Call

The Company will host a conference call at 4:30 p.m. EST (1:30 p.m. PST), February 27, 2019. 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 888-317-6003, International 412-317-6061, and reference ID # 0121144. A taped replay of the call will be available beginning at approximately 8:00 p.m. (EST) Wednesday, February 27, 2019, until midnight March 6, 2019. To listen to the replay, dial 877-344-7529, International 412-317-0088, and use access code 10128203.