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Perrigo Company plc Reports Second Quarter 2016 Financial Results

Primarily due to revised expectations for the Rx segment, the Company now expects calendar year 2016 reported earnings per diluted share in the range of $0.26 to $0.56 (compared to a loss of $0.23 in calendar year 2015) and expects calendar year 2016 adjusted earnings per diluted share in the range of $6.85 to $7.15.

* Held-for-sale businesses include the U.S. VMS business (CHC segment), sales attributable to the Etixx brand (BCH segment) and India API business (Other segment)

Perrigo Company plc (NYSE: PRGO; TASE) today announced results for the second quarter ended July 2, 2016.

Perrigo's CEO John T. Hendrickson commented, "Over my first 100 days I have been critically looking at our business through the lens of the leadership principles I have previously outlined. My unequivocal conclusion is that despite some short-term challenges, I continue to be excited about Perrigo's future. To be clear, our financial results were below our expectations primarily due to competition and price erosion in the Rx business. Adjusted net sales in our consumer-facing businesses were generally in-line with our expectations, highlighted by solid adjusted operating margins in both segments with nearly 21% in our CHC segment and 15% in the BCH segment.

I am disappointed however to announce that following this critical review of our businesses, we are changing adjusted EPS guidance for 2016. The majority of this change is due to revised expectations for price erosion and continued fluid market dynamics affecting the Rx business. In addition, we are revising our guidance on lower performance expectations for the BCH segment as we continue to implement transformational organizational changes and improvements in products and process in this business. Given these effects, we now anticipate our calendar 2016 adjusted EPS guidance to be in the range of $6.85 to $7.15. While there is much change underway at Perrigo, please know that I remain committed to the principles that I outlined in May: operational execution, action-oriented, transparency, and above all, shareholder value."

Refer to Tables I, II, III, and 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 Condensed Consolidated Statements of Operations and Balance Sheets.


Second Quarter Results




Perrigo Company plc

(in millions, except earnings per share amounts)

(see the attached Tables I & III for reconciliation to GAAP numbers)





Second Quarter
Ended


Second Quarter
Ended


YoY


Constant
Currency



7/2/2016


6/27/2015


% Change


% Change


Reported Net Sales

$1,481


$1,532


(3)%




Reported Net Income

$194


$56


244%




Reported Diluted Earnings per Share

$1.35


$0.38


255%













Adjusted Net Sales(1)

$1,437


$1,492


(4)%


(3)%


Adjusted Net Income

$278


$320


(13)%




Adjusted Diluted Earnings per Share

$1.93


$2.18


(11)%













Diluted Shares

143.6


146.8


(2)%





(1)

Second quarter 2016 net sales exclude $44 million of net sales from held-for-sale businesses (primarily VMS). For comparative purposes, second quarter 2015 net sales have been adjusted in this presentation to exclude $40 million of sales attributable to businesses that are currently held-for-sale. This 2015 net sales adjustment does not impact any other prior year amounts or metrics.

Reported net sales in the quarter were $1,481 million, a decrease of 3% over the second quarter of 2015 due primarily to relatively lower sales in the Consumer Healthcare segment, offset partially by higher sales in the Rx segment. Excluding any net sales contribution from held-for-sale businesses, adjusted net sales in the quarter were $1,437 million, a decrease of 3%, on a constant currency basis over the second quarter of 2015. New product sales of $89 million were offset partially by $16 million in discontinued products.

Reported net income of $194 million, or $1.35 per share, included the favorable impact of a $30 million reduction in the non-cash goodwill impairment recorded in the first quarter of 2016, versus net income of $56 million, or $0.38 per share, in the prior year. Excluding charges as outlined in Table I at the end of this release, second quarter 2016 adjusted net income was $278 million, or $1.93 per share, versus adjusted net income of $320 million, or $2.18 per share for the same period last year.


Segment Results




Consumer Healthcare Segment

(in millions)

(see the attached Tables II & III for reconciliation to GAAP numbers)





Second Quarter
Ended


Second Quarter
Ended


YoY


Constant Currency



7/2/2016


6/27/2015


% Change


% Change


Reported Net Sales

$686


$746


(8)%




Reported Gross Profit

$230


$258


(11)%




Reported Gross Margin

33.5%


34.6%


(110) bps




Reported Operating Income

$111


$143


(22)%




Reported Operating Margin

16.2%


19.2%


(300) bps













Adjusted Net Sales(1)

$644


$707


(9)%


(8)%


Adjusted Gross Profit

$236


$269


(12)%




Adjusted Gross Margin(2)

36.6%


36.0%


60 bps




Adjusted Operating Income

$134


$160


(16)%




Adjusted Operating Margin(2)

20.7%


21.4%


(70) bps





(1)

Second quarter 2016 net sales exclude $42 million from the U.S. VMS business, which is currently held-for-sale. For comparative purposes, second quarter 2015 net sales have been adjusted in this presentation to exclude $40 million of sales attributable to VMS. This 2015 net sales adjustment does not impact any other prior year amounts or metrics.

(2)

Q2 2015 adjusted gross margin and operating margin use reported net sales as the denominator.

Reported net sales in the CHC segment decreased 8% over the second quarter of 2015 and adjusted net sales, excluding VMS net sales in both periods, declined 8% on a constant currency basis. This decrease was due to lower sales in existing products of $84 million primarily in the cough/cold category driven by a relatively weak allergy season as compared to last year, the timing of promotions, lower orders in the contract manufacturing business and the effects of relatively lower pricing in the analgesics category. In addition, discontinued products were $12 million. These decreases were offset partially by new product sales of $32 million, which included the store brand launch of fluticasone nasal spray and new products in the infant formula category.

Despite the relatively weak allergy season, the CHC segment achieved a second quarter reported gross profit margin of 33.5% and an adjusted gross profit margin of 36.6% driven by strong performances in the infant formula and smoking cessation categories as well as supply chain efficiencies.

Reported operating margin decreased 300 bps to 16.2% due to an impairment charge recorded on the held-for-sale VMS business and increased R&D investments, offset partially by lower selling and administrative expenses. Adjusted operating margin decreased 70 bps to 20.7% compared to the prior year due to increased R&D investments, offset partially by lower selling and administrative expenses.


Branded Consumer Healthcare Segment

(in millions)

(see the attached Tables II & III for reconciliation to GAAP numbers)





Second Quarter
Ended


Second Quarter
Ended


YoY


Constant Currency



7/2/2016


6/27/2015


% Change


% Change


Reported Net Sales

$394


$401


(2)%




Reported Gross Profit

$173


$190


(9)%




Reported Gross Margin

44.0%


47.4%


(340) bps




Reported Operating Income (Loss)

$38


$27


44%




Reported Operating Margin

9.8%


6.6%


320 bps













Adjusted Net Sales(1)

$394


$401


(2)%


(2)%


Adjusted Gross Profit

$187


$213


(12)%




Adjusted Gross Margin(2)

47.4%


53.0%


(560) bps




Adjusted Operating Income

$59


$77


(24)%




Adjusted Operating Margin(2)

14.9%


19.2%


(430) bps





(1)

Second quarter 2016 net sales excludes Etixx, which is currently held-for-sale. For comparative purposes, second quarter 2015 net sales have also been adjusted to exclude Etixx. The sales attributable to Etixx are $0.1 million for both periods presented.

(2)

Q2 2015 adjusted gross margin and operating margin use reported net sales as the denominator.

Reported net sales decreased 2% over the second quarter of 2015 and adjusted net sales declined 2% on a constant currency basis. New product sales and acquisitions contributed $28 million and $29 million, respectively, offset by lower sales in the lifestyle and natural health/vitamins categories, which experienced a lifestyle category new product launch in the second quarter of 2015.

Second quarter reported gross profit was $173 million. Adjusted gross profit decreased 12% to $187 million driven by product mix and a significant product launch in the prior year.

Reported operating income was $38 million and included $5 million of restructuring expenses, which were offset partially by previously announced strategic initiatives to better align promotional investments with net sales. Adjusted operating income was $59 million due to relatively lower gross profit flow through than the prior year.

...

Prescription Pharmaceuticals (Rx) Segment

(in millions)

(see the attached Tables II & III for reconciliation to GAAP numbers)



Second Quarter
Ended


Second Quarter
Ended


YoY


Constant
Currency


7/2/2016


6/27/2015


% Change


% Change

Net Sales

$293


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