Perrigo Company’s PRGO third-quarter 2015 earnings of $1.76 per share beat the Zacks Consensus Estimate of $1.74. Reported quarter earnings were 26% above the year-ago figure.
Net sales in the quarter rose 41% to $1.3 billion, benefiting from higher sales in Consumer Healthcare and Rx Pharmaceuticals segments and an impressive performance from the Branded Consumer Healthcare segment. However, revenues were below the Zacks Consensus Estimate of $1.4 billion.
Third Quarter in Detail
Perrigo reports revenues primarily from the following segments: Consumer Healthcare, Branded Consumer Healthcare (newly acquired Omega business), Rx Pharmaceuticals, Specialty Sciences and Other (which includes the active pharmaceutical ingredients (API) business).
Consumer Healthcare: Perrigo reported Consumer Healthcare revenues of $675.2 million in the quarter, up 5% year over year. Revenues were driven by new product sales and an increase in existing product revenues in the gastrointestinal, infant formula and cough/cold categories.
Branded Consumer Healthcare: Perrigo reported revenues of $302.2 million, which reflects revenues from the newly acquired Omega business.
Rx Pharmaceuticals: The Rx Pharmaceuticals segment performed encouragingly during the quarter with net sales rising 34% to $260.3 million, driven by new product sales and an increase in existing product sales.
Specialty Sciences: Segmental revenues comprising royalties received by Perrigo on multiple sclerosis drug Tysabri from Biogen Inc. BIIB came in at $84.5 million, down 8% year over year. Unfavorable foreign currency movements reduced revenues by $6 million.
Others accounted for the remaining revenues.
Restructuring Initiatives
Apart from its quarterly results, the company also announced restructuring initiatives, which are expected to generate incremental benefits of $175 million when the full run rate of the plan is achieved. The restructuring initiatives include immediate steps to consolidate its operations, supply chain and procurement management activities into one global center in Ireland, which is expected to yield annualized operational and tax benefits of $105 million. The company also plans to streamline its organizational structure and eliminate redundant administrative functions to generate annualized operating benefits of $35 million and plans to divest its U.S. Vitamins, Minerals and Supplements (VMS) business. The company expects annualized operating benefit of $35 million from the sale of the VMS business.
As a part of its restricting plan, Perrigo will reduce approximately 6% of its current global headcount or cut approximately 800 positions.
Meanwhile, Perrigo announced a $2 billion share repurchase plan including $500 million of repurchases (expected to be completed by the end of 2015) and an additional $1.5 billion (expected to be completed over the next 2–3 years).
Narrows Outlook
Perrigo revised its 2015 earnings guidance. The company now expects earnings in the range of $7.65 to $7.85 per share (previous guidance – $7.50 to $8.00 per share). The guidance excludes the impact of the share repurchase plan. For 2016, the company expects earnings to be $9.30 per share, representing a 20% increase from the midpoint ($7.75 per share) of the 2015 earnings guidance range.
Our Take
We are impressed by Perrigo beating third-quarter earnings estimates. We are pleased with the performance of the Consumer Healthcare, Branded Consumer Healthcare and Rx Pharmaceuticals segments. We are positive on the company’s ‘Base Plus Plus Plus' strategy focused on the expansion of the company’s base by pursuing acquisitions. The company’s restructuring plans to boost shareholder value also looks encouraging.
Meanwhile, Mylan MYL is looking to acquire Perrigo and has launched a formal offer to exchange all outstanding ordinary shares of Perrigo. Investor focus is expected to remain on Mylan-Perrigo updates in the near term.
Investors looking to invest in the health care segment can consider Teva Pharmaceutical Industries Limited TEVA carrying a Zacks Rank #2 (Buy).
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