Perrigo Company plc , a leading global provider of Consumer Self-Care Products, today announced financial results from continuing operations for the first quarter of fiscal year 2021 ended April 3, 2021. The Consumer Self-Care Americas (“CSCA”) segment, the Consumer Self-Care International (“CSCI”) segment and Corporate are included in results from continuing operations. Financial results from the generic Rx pharmaceuticals business are reported as discontinued operations. All comparisons are against the prior-year fiscal first quarter, unless otherwise noted.
President and CEO, Murray S. Kessler commented, “Two years ago, we began our journey to transform Perrigo from a healthcare to a consumer self-care company and with the actions taken this quarter, that transformation is now nearly complete. On March 1, 2021, we announced the divestment of our generic Rx business, our tenth transaction over the last two years, essentially completing our portfolio reconfiguration. We have made the necessary investments in infrastructure, capabilities, talent and capacity, and as a result have restored Perrigo to growth, all while weathering the storm of a horrific global pandemic. From where I sit, Perrigo is re-born.”
Kessler further noted, “The reported declines in the first quarter were distorted by consumer pantry loading in the year ago quarter and by a historically weak cough/cold season this year, both of which were the result of COVID-19. Our business remains strong, even during this volatile environment, as evidenced by Perrigo’s first quarter 2021 two-year reported and organic compound annual growth rates, compared to the pre-COVID first quarter of 2019. Additionally, Perrigo’s first quarter performance results were in line with our expectations. Looking ahead to the rest of the year, we are encouraged to see the recent increases in retail store foot traffic, more people traveling again, and children returning to school in the fall. Further, according to leading sources, the 2021-2022 cough/cold season is expected to be more normal. That, in combination with Perrigo’s durable business fundamentals, strong pipeline of new product launches, productivity improvements in progress and e-commerce leadership, provides us confidence in our ability to deliver a strong second half and is why we are reaffirming our ‘3/5/7’ growth guidance for 2021.”
Kessler concluded, “Perrigo is now a pure-play consumer self-care company that is on-trend and growing. When the Rx deal closes, we will have approximately $2 billion in cash to support the growth of the business and strengthen our balance sheet. We believe this represents a significant value creation opportunity, as Perrigo’s forward price-to-earnings multiple continues to trade at a significant discount to our CPG peers with similar growth profiles. I am more excited than ever about the future of Perrigo and am grateful to all of our teams around the world who have helped to transform Perrigo.”
Refer to Tables I – IV at the end of this press release for a reconciliation of non-GAAP adjustments to the current year and prior year periods and additional non-GAAP information. The Company’s reported results are included in the attached Consolidated Statements of Operations, Balance Sheets and Statements of Cash Flows.
Given the difficulty in comparing first quarter 2021 net sales results to the first quarter of 2020 due to the pandemic-related pantry load and subsequent destock in the second quarter of 2020, two-year compound annual growth rates (CAGRs) are provided below, offering further insight into underlying growth trends.
First Quarter 2021 Financial Highlights From Continuing Operations
(1) See attached Appendix for details. Organic net sales growth excludes the effects of acquisitions and divestitures and the impact of currency.
(2) In addition to other non-GAAP adjustments as described in the attached appendix, adjusted profit measures, including adjusted EPS and adjusted operating income, exclude from both periods certain costs, which are reported in GAAP continuing operations but were previously allocated to the RX business. On a go-forward basis, such costs will either be covered by the transition services agreement or eliminated following closing. Accordingly, as described below under “Non-GAAP Adjustments”, we do not believe such operational costs are representative of the future expenses of our continuing operations. See the attached Appendix for additional details.
First Quarter 2021 Perrigo Results From Continuing Operations
Perrigo net sales for the first quarter were $1.01 billion, a decrease of $73 million or 6.8%, including positive impacts of 3.0 percentage points and 2.3 percentage points from acquisitions and favorable currency movements, respectively, offset by a negative impact of 1.2 percentage points from divestitures. Organic net sales declined 10.9%, including the estimated pandemic-related pantry load benefit in the prior year quarter of 6.8 percentage points and the estimated negative impact from the very low incidence of cough/cold related illness this year of 6.4 percentage points.
On a two-year CAGR basis, net sales grew 4.1%, including a negative 4.5 percentage points impact from the very low incidence of cough/cold related illness this year. Organic net sales declined 0.4%, including a negative 4.1 percentage points impact from the weak cough/cold season.
Net sales in the quarter were driven by 1) $32 million from the acquisitions of Dr. Fresh and Eastern European dermatology brands, 2) organic growth of $25 million, excluding the estimated impacts from the pandemic-related pantry load benefit in the prior year and the very low incidence of cough/cold related illness this year, and 3) $25 million in net favorable currency movements. These gains were more than offset by 1) the estimated impact from the pandemic-related pantry load benefit in the prior year of $73 million, 2) the estimated impact from the very low incidence of cough/cold related illness this year of $68 million, and 3) $14 million from divested businesses.
First quarter reported operating income was $51 million in 2021 and $86 million in 2020. Adjusted operating income was $118 million in 2021 and $151 million in 2020, a decrease of $33 million or 21.6%. Results were impacted by lower net sales volumes leading to lower gross profit, divestitures, and higher operating expenses including R&D investments. These factors were partially offset by lower advertising and promotion expenditures, acquisitions and positive pricing.
Reported net income was $3 million, or $0.02 per diluted share, versus net income of $58 million, or $0.42 per diluted share in the prior year period. Excluding certain charges as outlined in Table I, first quarter 2021 adjusted net income was $67 million, or $0.50 per diluted share, versus $92 million, or $0.67 per diluted share, for the same period last year. Adjusted EPS was lower as positive impacts from growth in certain base business categories, lower advertising and promotion expenditures, acquisitions and savings from Project Momentum were more than offset by the estimated pandemic-related pantry load benefit in the prior year quarter of $0.16 per diluted share, the estimated negative impact from the very low incidence of cough/cold related illness this year of $0.14 per diluted share, and divested businesses of $0.03 per diluted share.
First Quarter 2021 Business Segment Results From Continuing Operations
Consumer Self-Care Americas Segment
CSCA first quarter net sales of $641 million were 8.6%, or $60 million, lower than the prior year, including a positive 3.4 percentage points impact from the Dr. Fresh acquisition. Organic net sales decreased 11.8%, including the estimated pandemic-related pantry load benefit in the prior year quarter of 7.1 percentage points and the estimated negative impact from the very low incidence of cough/cold related illness this year of 5.0 percentage points.
On a two-year CAGR basis, net sales grew 4.9%, including a negative 3.6 percentage points impact due to the very low incidence of cough/cold related illness this year. Organic net sales grew 0.8%, including a negative 3.3 percentage points impact from the weak cough/cold season.
OTC net sales in the quarter were driven by 1) strong e-commerce growth as consumers continued shifting purchases to online where Perrigo has greater market share than in-store, which more than offset lower in-store purchases as measured by IRI MULO, 2) double-digit percentage growth in the branded OTC product portfolio led by Prevacid® and ScarAway®, and 3) higher net sales in the Digestive Health category, due primarily to favorable consumer conversion to Perrigo OTC products and incremental new product sales from Esomeprazole Mini, and in the Skin & Personal Hygiene category, due primarily to higher demand in the minoxidil franchise. More than offsetting these drivers were the pandemic-related pantry load benefit in the prior year quarter and the very low incidence of cough/cold related illness this year, which impacted the Upper Respiratory and Pain & Sleep Aids categories.
Perrigo omnichannel POS (point of sale) declined 18.7% for the 13-weeks ending March 21, 2021, compared to an estimated decline in total store brand OTC omnichannel POS data of 19.8%, leading to a Perrigo share gain from store brand competitors of 27 basis points. Perrigo’s share of total OTC on an omnichannel basis was stable in categories that declined an estimated 19.1% in the categories in which Perrigo competes.
Net sales in the Oral Self-Care category were driven by the Dr. Fresh acquisition, strong growth in e-commerce net sales, which doubled compared to the prior year quarter, and new products. These drivers were partially offset by soft demand for travel-related oral care products related to COVID-19 and lower customer inventory compared to the prior year due to timing of orders.
In the Nutrition category, net sales growth in e-commerce and contract manufacturing were more than offset by the pandemic-related pantry load benefit in the prior year quarter and an increase in governmental benefits that led to a decline in store brand market share.
Reported operating income for CSCA was $96 million. Adjusted operating income decreased $26 million to $111 million due primarily to 1) gross profit flow-through on lower net sales, 2) higher input costs on certain products and unfavorable plant overhead absorption due primarily to lower production volumes compared to the prior year pandemic-related pantry load benefit, and 3) higher operating expenses, including R&D investments. These factors were partially offset by favorable product mix.
Consumer Self-Care International Segment
CSCI net sales of $370 million decreased $13 million, or 3.4%, including a positive 6.8 percentage points impact from favorable currency movements, a positive 2.3 percentage points impact from acquisitions and a negative 3.5 percentage points impact from divestitures. Organic net sales were 9.1% lower, including the estimated 9.0 percentage points negative impact from the very low incidence of cough/cold related illness this year and the estimated pandemic-related pantry load benefit in the prior year quarter of 6.2 percentage points.
On a two-year CAGR basis, CSCI net sales grew 2.6%, including a negative 6.1 percentage points impact due to the very low incidence of cough/cold related illness this year. Organic net sales declined 2.9%, including a negative 5.5 percentage points impact from the weak cough/cold season.
Net sales in the quarter were driven by 1) new products, including line extensions in the ACO dermatology product line and in the Davitamon and Granufink VMS (Vitamins, Minerals and Supplements) product lines, 2) positive pricing, 3) the acquisition of three Eastern European OTC Dermatology Brands, 4) higher net sales in the Pain & Sleep Aids category, and 5) $26 million in favorable currency movements. These drivers were more than offset by 1) the very low incidence of cough/cold related illness this year, which impacted the Upper Respiratory category, 2) comparison to the pandemic-related pantry load benefit in the prior year quarter, 3) lower demand for anti-parasite products within the Skincare & Personal Hygiene category due primarily to COVID-19 related school closings and limited travel, and 4) divested businesses of $14 million.
Reported operating income was $17 million. Adjusted operating income decreased $4 million to $60 million due primarily to gross profit flow-through on lower net sales and the impact from divested businesses. These factors were partially offset by lower advertising and promotion spend, greater operational efficiencies and favorable currency movements.
U.S. Licensing Agreement with Burt’s Bees®
Perrigo announced today the existence of a licensing agreement with Burt’s Bees® to offer a comprehensive, innovative line of organic baby formulas and nature-based remedies for kids under the Burt’s Bees® brand. This partnership combines Perrigo’s R&D, regulatory, and sales and marketing capabilities with Burt’s Bees® leading trusted and distinctive brand and deep understanding of the efficacy of nature-based ingredients to care for baby and mom, to create innovative organic and nature-based remedies.
Fiscal 2021 Outlook From Continuing Operations
The Company reaffirmed its fiscal 2021 outlook and expects to deliver 3% organic net sales growth, 5% adjusted operating income growth and 7% adjusted diluted EPS growth, translating into an adjusted diluted EPS range of $2.50 to $2.70.
The Company cannot reconcile its expected adjusted diluted earnings per share to diluted earnings per share under “Fiscal 2021 Outlook” without unreasonable effort because certain items that impact net income and other reconciling metrics are out of the Company’s control and/or cannot be reasonably predicted at this time.
Perrigo Company plc (NYSE; TASE: PRGO) is a leading provider of Quality, Affordable Self-Care Products and over-the-counter (OTC) health and wellness solutions that enhance individual well-being by empowering consumers to proactively prevent or treat conditions that can be self-managed. Led by its consumer self-care strategy, Perrigo is the largest store brand OTC player in the U.S. in the categories in which it competes through more than 9,000 SKUs under customer ‘own brand’ labels. Additionally, Perrigo is a Top 10 OTC company by revenue in Europe, where it markets more than 200 branded OTC products throughout 28 countries. Visit Perrigo online at www.perrigo.com.
Webcast and Conference Call Information
The conference call will be available live at 8:00 a.m. EST via webcast to interested parties in the investor relations section of the Perrigo website at http://perrigo.investorroom.com/events-webcasts or by phone at 888-317-6003, International 412-317-6061, and reference ID # 5211930. A taped replay of the call will be available beginning at approximately 12:00 p.m. (EDT) Tuesday, May 11, until midnight Tuesday, May 18, 2021. To listen to the replay, dial 877-344-7529, International 412-317-0088, and use access code 10155879.