Perrigo (PRGO) Misses Q4 Earnings Estimates, Tops Revenues

Perrigo Company plc (NYSE:PRGO) reported fourth-quarter 2019 adjusted earnings of $1.06 per share, which missed the Zacks Consensus Estimate of $1.08. However, the bottom line increased 9.3% year over year.

Net sales increased 10.7% year over year to $1.32 billion, beating the Zacks Consensus Estimate of $1.3 billion by a slight margin. The year-over-year growth was mainly due to addition of products from the recently closed Ranir acquisition and higher demand for existing products. Sales of $58 million from new products were partially offset by a loss of $9 million in sales from discontinued products. Sales rose 13.4% excluding the impact of foreign currency movement.

Shares of Perrigo were down 4.6% in pre-market trading on Feb 27, following the earnings release. The company’s shares have rallied 28.9% in the past year compared with the industry’s rise of 1.5%.

Segment Discussion

Perrigo now reports its results under the following segments — Consumer Self Care Americas (“CSCA”), Consumer Self Care International (“CSCI”) and Prescription Pharmaceuticals (“RX”). In the first quarter of 2019, the company had initiated a process to transform itself from a healthcare to a consumer self-care company.

In July 2019, the company completed the acquisition of Ranir Global Holdings LLC, the global leader in private label oral self-care market, as part of its transformation into a self-care company.

CSCA: Net sales of the segment in the fourth quarter of 2019 came in at $710.5 million, up 15.2% year over year, driven by higher sales of over-the-counter (“OTC”) and nutrition businesses, and $52 million of net sales from products added after the Ranir acquisition. Excluding net sales from exited businesses, additional sales from Ranir’s products and the impact of foreign currency movement, net sales at CSCA increased approximately 10.6%.

The company divested its Animal Health business for $185 million in cash to pet medication and wellness company, PetIQ (NASDAQ:PETQ) , in 2019.

CSCI: The segment reported net sales of $356 million, up 8.2% from the year-ago period. The growth was driven by new product sales of $23 million, especially weight loss product XLS Forte 5, and $22 million of net sales from Ranir's products, as well as higher sales from store brand business in the United Kingdom. Excluding net sales from Ranir’s products and the impact of foreign currency movement, sales increased 4.3%.

Rx Segment: Net sales of the segment increased 2.8% to $256 million. The upside can be attributed to new product sales of $19 million and higher volumes of existing products. The company lost $6 million in sales from discontinued products. Pricing pressure in this segment unfavorably impacted sales.

2020 Guidance

Perrigo provided its guidance for adjusted earnings and net sales in 2020. It expects adjusted earnings to be in the range of $3.95 to $4.15 per share. It anticipates net sales to grow 6-7% year over year in 2020. Organic growth in net sales is expected to be approximately 3%.

Our Take

Perrigo reported mixed fourth-quarter results with earnings missing estimates but sales beating the same. However, sales rose across all segments. The company’s transformation initiatives seem to support top- and bottom-line growth. Revenues increased sequentially every quarter in 2019.

Moreover, the company’s Rx segment returned to growth in 2019 after a weak 2018. The growth trend is expected to continue in 2020. However, pricing pressure across all segments remains a concern.

Zacks Rank & Key Picks

Perrigo currently carries a Zacks Rank #2 (Buy).

A couple of stocks to consider from the pharma/biotech sector are Vertex Pharmaceuticals Inc. (NASDAQ:VRTX) and Clovis Oncology (NASDAQ:CLVS) . Both stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Vertex’s earnings per share estimates have moved up from $6.68 to $7.57 for 2020 and from $8.59 to $9.62 for 2021 in the past 30 days. The company delivered a positive earnings surprise in all the trailing four quarters, with the average being 21.76%. Share price of the company has increased 22.3% in the past year.

Loss estimates for Clovis narrowed from $4.78 to $4.73 for 2020 and from $3.38 to $3.33 for 2021 in the past 30 days.

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