Perrigo Company’s (PRGO) first-quarter fiscal 2014 (ended Sep 28, 2013) earnings of $1.52 per share breezed past the Zacks Consensus Estimate by 12 cents. The company reported earnings of $1.27 per share in the prior-year quarter. The year-over-year rise in earnings was due to higher revenues.
Net sales in the quarter climbed 21.3% to $933.4 million. Revenues increased $64 million due to the inclusion of results of Sergeant's Pet Care Products, Inc. (assets acquired by Perrigo in Oct 2012), Rosemont Pharma (acquired by Perrigo in Feb 2013), Velcera (acquired in Apr 2013) and Fera’s ophthalmic product portfolio (acquired in Jun 2013). Newly launched products boosted revenues by $54 million. Revenues beat the Zacks Consensus Estimate of $903 million. The strong results in the first quarter of fiscal 2014 impacted the shares positively.
The First Quarter in Detail
Perrigo reports revenue primarily from the following segments: Consumer HealthCare (CHC), Nutritionals, Rx Pharmaceuticals and Active Pharmaceutical Ingredients (API).
Consumer Healthcare: Perrigo reported CHC revenue of $538 million in the quarter, up 20% from the prior year. Net sales growth was driven by improved sales of existing products primarily in the analgesics and cough/cold categories units, along with strong new product sales, mainly in the cough/cold and smoking cessation divisions.
Sales in the segment were also aided by results from Sergeant's Pet Care Products and Velcera. Adjusted gross margin for the segment climbed to 33.5% from 32.6% a year ago.
Nutritional: Perrigo reported revenue of $129 million, up 25% year over year. All the sub-groups of the segment witnessed growth during the reported quarter. Adjusted gross margin for the segment declined to 26.3% in the first quarter of fiscal 2014 from 27.9% a year ago. The decline was due to unfavorable product mix and higher cost of production.
Rx Pharmaceuticals: The Rx Pharmaceuticals segment performed encouragingly during the quarter with net sales improving 25% to $204 million. Sales of new products boosted segmental revenues by $15 million. Inclusion of results of Rosemont Pharma and Fera’s ophthalmic product portfolio boosted sales by $23 million. Adjusted gross margin for the segment increased to 63.1% from 58.4% a year ago.
Active Pharmaceutical Ingredients: The company reported API sales of $43 million, up 18% from the prior-year quarter. Results were aided by strong sales of new products.
Others accounted for the remaining revenues.
Fiscal 2014 View Maintained
Perrigo continues to expect earnings per share (on an adjusted basis) for fiscal 2014 in the range of $6.35 and $6.60, up 13%-18% over fiscal 2013 levels. The Zacks Consensus Estimate currently stands at $6.53 per share for fiscal 2014.
Perrigo stated in its press release that it expects its impending acquisition of Elan Corporation (ELN) to boost fiscal 2014 earnings (standalone) by 10 cents per share and fiscal 2015 earnings by 70-80 cents per share inclusive of synergies.
Our Take
We are impressed by the performance of Perrigo in the first quarter of fiscal 2014. The company reported higher-than-expected earnings as well as revenues during the quarter. Perrigo’s strong product portfolio and impressive pipeline encourage us.
We are also impressed by Perrigo’s growth by acquisition strategy. We expect investor focus to remain on Perrigo’s impending acquisition of Elan. The cash and stock deal ($8.6 billion), cleared by the board of directors of both the companies, is expected to close by the end of calendar year 2013. On completion of the deal, Perrigo’s revenue stream would be boosted as it will receive significant royalties on multiple sclerosis drug Tysabri from Biogen Idec Inc. (BIIB).
Perrigo currently carries a Zacks Rank #3 (Hold). Right now, Actelion Ltd. (ALIOF) looks attractive, with a Zacks Rank #1 (Strong Buy).
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