Perrigo (PRGO) Misses Q2 Earnings Estimates, Cuts '16 View

Perrigo Company plc's (NYSE:PRGO) second-quarter 2016 earnings of $1.93 per share fell short of the Zacks Consensus Estimate of $2.00. Reported earnings also declined 11% from the year-ago figure.

Net sales in the reported quarter also declined 3% to $1.48 billion primarily due to relatively lower sales in the Consumer Healthcare segment that was partially offset by higher sales in the Prescription Pharmaceuticals (Rx) segment. Revenues, however, beat the Zacks Consensus Estimate of $1.44 billion.

Mixed Performance in Q2

Perrigo reports revenues primarily from the following segments: Consumer Healthcare, Branded Consumer Healthcare (created as a result of the Mar 2015 Omega Pharma acquisition), Rx Pharmaceuticals, Specialty Sciences, and Other (which includes the active pharmaceutical ingredients business).

Excluding net sales contribution from held-for-sale businesses (primarily the U.S. Vitamins, Minerals and Supplements business within the Consumer Healthcare segment), adjusted net sales in the quarter came in at $1.44 billion, a decline of 4% from the year-ago period and 3% on a constant currency basis. New product sales of $89 million were offset partially by $16 million in discontinued products.

Consumer Healthcare: Perrigo reported adjusted Consumer Healthcare net sales in the second quarter of $644 million, down 9% from the year-ago period and 8% on a constant currency basis.

This decrease was due to lower sales of existing products ($84 million), primarily in the cough/cold category owing to 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 product sales were $12 million. These were partially offset 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.

Branded Consumer Healthcare: The company reported net sales of $394 million, up almost 24% sequentially. 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 had experienced a lifestyle category new product launch in the second quarter of 2015.

Rx Pharmaceuticals: The Rx Pharmaceuticals segment performed encouragingly during the quarter, with net sales rising 5% to $293 million driven by $44 million related to recent product acquisitions and new product sales of $26 million. These were partially offset by a decrease in sales of existing products of $50 million due to price erosion across the portfolio and the lack of an exclusive market position for two key products versus the prior year.

Specialty Sciences: Segmental revenues comprised royalties of $90 million received by Perrigo on net sales of Biogen Inc.’s (NASDAQ:BIIB) multiple sclerosis drug Tysabri, up 7% year over year.

2016 Earnings Outlook Lowered

Considering the revised expectations for price erosion and changing market dynamics affecting the Rx business in addition to lower performance expectations for the Branded Consumer Healthcare segment as Perrigo continues to implement transformational organizational changes and improvements in products and process in this business, the company lowered its 2016 earnings outlook.

The company now expects 2016 earnings in the range of $6.85 to $7.15 per share (old guidance: $8.20 to $8.60 per share). The Zacks Consensus Estimate for earnings is $8.29 per share.

Our Take

Perrigo’s second-quarter results were disappointing with the company missing on earnings and surpassing revenues marginally. Performance of the business segments were far from encouraging. The company’s lowered 2016 earnings outlook is also concerning. We expect investors to react negatively to the news.

Perrigo is a Zack Rank #3 (Hold) stock. A couple of better-ranked stocks in the health care sector are Corcept Therapeutics Inc. (NASDAQ:CORT) and ANI Pharmaceuticals, Inc. (NASDAQ:ANIP) , each sporting a Zacks Rank #1 (Strong Buy).