Perrigo Company’s (PRGO) first-quarter fiscal 2015 (ended Sep 27, 2014) earnings of $1.40 per share missed the Zacks Consensus Estimate of $1.45. Reported quarter earnings were 8% below the year-ago figure.
Net sales in the quarter increased 2% to $951.5 million. Revenues increased $92 million due to the contribution from Elan Corporation (acquired in Dec 2013). Newly launched products boosted revenues by $24 million. Revenues were however below the Zacks Consensus Estimate of $1 billion. Lower year-over-year seasonal sales volume and contract sales in the Consumer Healthcare (CHC) segment, pricing programs and disappointing sales in the Nutritional segment affected revenues negatively.
The First Quarter in Detail
Perrigo reports revenues primarily from the following segments: CHC, Nutritionals, Rx Pharmaceuticals, Active Pharmaceutical Ingredients (API) and Specialty Sciences. The Specialty Sciences unit came into existence following the Elan Corporation acquisition.
Consumer Healthcare: Perrigo reported CHC revenues of $493.3 million in the quarter, down 8%. Revenues of certain existing products in the cough/cold, contract manufacturing and analgesics categories were hurt by higher seasonal purchases in last year's cough/cold and flu season, lower contract manufacturing sales and lack of guaifenesin 600mg ER sales. The company announced that it has initiated the shipment of guaifenesin, along with the fiscal first quarter results.
Nutritional: Perrigo reported revenues of $125.3 million, down 3% year over year. Below par sales of products in the infant/toddler food and VMS units hurt segmental sales.
Rx Pharmaceuticals: The Rx Pharmaceuticals segment performed disappointingly during the quarter with net sales falling 4% to $194.5 million. Absence of revenues from discontinued products offset the revenues from new and acquired products. Additionally, charges associated with pricing programs also hampered net sales. The pricing programs are expected to benefit the company from the fiscal second quarter.
Active Pharmaceutical Ingredients: The company reported API sales of $24.8 million, down 43% from the prior-year quarter. Results were hurt by lower sales of existing products due to increased competition.
Specialty Sciences: Segmental revenues came in at $91.9 million due to royalties received by Perrigo on multiple sclerosis drug Tysabri from Biogen Idec (BIIB).
Others accounted for the remaining revenues.
Fiscal 2015 View Reiterated
Perrigo reiterated its guidance for fiscal 2015. The company continues to expect adjusted earnings per share in the range of $7.20 to $7.50, up 13% to 17% over fiscal 2014 levels. The Zacks Consensus Estimate of $7.41 per share is on the higher end of the guidance range.
Along with the fiscal first quarter results, Perrigo also announced that it has entered into an agreement to acquire Omega Pharma, a leading over-the-counter health care company in Europe, in a transaction valued at €3.6 billion ($4.5 billion), which includes the assumption of €1.1 billion in debt. The transaction is expected to close in the first quarter of calendar year 2015.
Our Take
We are disappointed with Perrigo missing on both sales and earnings estimates. We believe that investors will negatively react to the fiscal first quarter results. Most of the company’s segments did not perform well this quarter.
However, the company is expected to benefit from the price programs from the fiscal second quarter. We are positive on the Omega Pharma acquisition, which is in line with Perrigo's strategy to expand internationally.
Perrigo holds a Zacks Rank #3 (Sell). Some better-ranked stocks in the health care sector are Allergan (AGN) and AbbVie (ABBV). Both carry a Zacks Rank #2 (Buy).
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