Pricing comes through in Q4 (PRGO)
Perrigo reported Q4 EPS of $.75, above consensus expectations of $.71 with a $.05 headwind from Fx. Adjusted EPS of $2.07 was flattish YOY and in line with revised guidance of $2.00-2.10. EPS in constant currencies was $2.31. Total revenue grew 4.6% or 9.6% in constant currencies. Organic sales grew by 1.5%. Overall gross margins expanded 350bps YOY, benefiting from acquisitions including HRA, price increases, and a higher margin mix. Price actions of $48M exceeded inflationary cost increases of $33M.
CSCA sales increased by 4.0% with organic sales growth of 0.5%. The divestment of several Latin American businesses had a -1.7% point impact to sales growth. Segment gross margins expanded by 420bps due to price increases, a higher margin mix, and acquisitions more than offsetting inflationary increases and productivity challenges. Gross margins also expanded by 190bps sequentially. Operating profit increased by 31%.
- Upper Respiratory sales decreased by 2.6% due to a -3.6% percentage point impact from the divested Latin American business. Sales decelerated from the 8.4% growth reported in Q3.
- Nutrition grew 32.3% due to the infant formula plant purchase.
- Digestive Health sales increased by 0.8% with a divestment having a -1.8% impact.
- Pain & Sleep Aids decreased by 8.7% with a -5.7% impact from a divestment.
- Oral Care decreased by 2.6% due to exiting lower margin products at one customer after growing 9% in Q3.
- Healthy Lifestyle decreased by 2.2% due to shipment timing.
- Skin Care increased 10.8% with a -3.2% impact from a divestment, accelerating from 5.4% in Q3.
- Women’s Health increased by 32.6% due to the HRA acquisition.
- Vitamins, Minerals, and Supplements sales increased by 11.2%, improving from the 45% decrease in Q3.
CSCI sales increased 5.7% or 20.5% in constant currencies, driven by the HRA acquisition. Segment gross margins expanded 210bps due to the addition of acquisitions and pricing offsetting inflationary pressures and productivity challenges. Operating profit in constant currencies increased by 2.3%.
- Skin Care grew 40.7% in constant currencies, accelerating from 37% in Q3.
- Upper Respiratory increased by 2.3%, decelerating from 43.8% growth sequentially.
- Vitamins, Minerals, and Supplements decreased by 5.9%, lapping a pandemic driven 2021.
- Women’s Health increased by 191% accelerating from 163% sequentially.
- Pain & Sleep Aids increased by 11% accelerating from 2.4% sequentially.
- Healthy Lifestyle decreased by 9.5% due to weaker performance in weight management and smoking cessation decelerating from 2.4% growth sequentially.
- Oral Care increased by 13.7%.
- Digestive Health and other sales increased by 36.4% due to the addition of the HRA rare disease portfolio.
The company is hosting an investor day on Tuesday. With depleted inventory levels at retail for Cough & Cold, a better outlook for Oral Care from lower freight rates, additional Infant Formula production capacity (better for revenue growth and margins), and continued synergies from HRA, Perrigo's 2023 is set up to put the challenges of 2022 behind. Setting expectations that investors have confidence in that can be exceeded over the course of the year will be the most important aspect of the investor day.
Beer Index recovers (STZ)
The National Beer Wholesalers Association’s (NBWA) Beer Purchasers Index (BPI) improved to 54 in February from 38 in January. A reading above 50 denotes expansion in volumes while below 50 indicates contraction. It was the first time the beer distributors’ outlook was above 50 since May 2022. Imports and below premium are the only two segments in expansion.
- Imports jumped to 62 in February after falling to 52 in January, but still below 69 last February.
- Craft beer improved to 34 from 21 in January, but still below the year ago level of 51.
- Premium lights improved to 46 from 37 in January and was even with a year ago.
- Premium regular improved to 41 from 27 in January and 32 last year.
- Below premium improved to expansion at 53 in February from 48 in January and 30 in February 2022.
- FMB/Hard Seltzer improved to 40 from 18 in January, above last year’s 34.
- The measure for at-risk inventory improved from 52 in January to 47 in February.
It has been ten months since the BPI has been in expansion territory while the at-risk inventory has been in contraction, a notable improvement. February does lap last year’s BPI of 43, one of the lowest readings over the past eight years. Volumes were challenging for the industry with the rising prices for beer.
California rivers of rain (KR)
Over the weekend Southern California received several inches of rain and the mountains to the east received several feet of snowfall. In Northern California, an area that received several inches of rain during a series of atmospheric rivers in late December and the first half of January saw several more inches of rain in the most recent storms. California has received almost double its average annual snowfall in just five months. The statewide snow water content is at 144% of the April 1 average (April 1 is typically the peak for the season). Many reservoirs fed by snowmelt are currently below average but are expected to fill up in the spring. The actual daily storage level of the state’s major reservoirs is at 60% of capacity. Despite the recent rainfall, the entire state remains under some form of drought and most of the state is in a “moderate” drought.
The Colorado River, which supplies most of Southern California, did not see much benefit from the recent storms. California’s Department of Water Resources increased the amount of water it expects to deliver to 35% of requested water supplies from 30% projected in January. Last year California cut water allocations to just 5%.
According to the USDA, 80% of U.S.-grown fruits, nuts, and vegetables are grown west of the Rockies. 80% of the global supply of almonds comes from California. In the near term produce items including lettuce, cauliflower, broccoli, and celery are seeing price spikes as a result of the West coast winter storms. Less use of wells for farming in California is bullish for produce supplies.
