PRGO Black Book
We are hosting our Perrigo Black Book presentation on Tuesday, March 21 at 2 PM ET.
In 2022, Perrigo earned 30% less than the original EPS estimate at the beginning of the year. Even events that were in Perrigo’s favor became causes of negative EPS revisions.
We will review what happened during the year, what went wrong, and what went right. 2022 was still largely driven by macro factors with more elements out of the control of management than what they can be held accountable for. We will hold ourselves accountable and assess what is thesis creep and what parts of the investment thesis remain the same. More importantly, we will look out and project what could go better or worse for Perrigo by examining the headwinds and tailwinds.
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), continued synergies from HRA, and margin recapture from pricing initiatives Perrigo's 2023 is set up to put the challenges of 2022 behind. Management’s three-year outlook is well above the long-term growth formula, but it reflects lapping non-repeating events and management’s confidence in both recovery and growth.
Event Details:
|
Position Monitor Changes
HSY - Added to the Best Idea Long list ahead of the analyst day. Hershey competes in a category with low private label penetration with brands that have strong pricing power. The company will have additional capacity and price increases in 2023. Hershey will be differentiated by having gross margin and EBITDA margin expansion while also having volume growth.
WMT - Removed from the Long list and moved down to the Long Bias list. Our upside in EPS estimates vs. consensus expectations has narrowed.
WEST - Moved up one spot on the Long list after Q4 results.
OTLY - Removed from the Short Bias list after Q4 results, steps to strengthen the balance sheet, and outlook for sequentially improvement in margins in 2023.
HNST - Removed from the Short Bias list after Q4 results and subsequent stock price decline.
Flu season update (PRGO)
The CDC estimates that there have been at least 26 million illnesses, 290,000 hospitalizations, and 18,000 deaths from the flu this season. The cumulative hospitalization rate is the second highest observed for the tenth week of the year going back to 2010-11, following only the 2017-18 season. The in-season cumulative hospitalization rate is similar to the end-of-season hospitalization rates for 4 seasons (2014-2015, 2016-2017, 2018-2019, and 2019-2020 seasons) and lower than the end-of-season hospitalization rate for the 2017-2018 season, going back to 2010-2011. Perrigo was not able to fill all the orders for cough and cold medicines, especially liquid medicines. Restocking inventory levels will be a tailwind for 2023.
SNAP findings (WMT)
Emergency SNAP benefits expired on March 1 for some 30 million people across 32 states. The Center on Budget and Policy Priorities estimates the average person’s SNAP allocation was reduced by $90 per month. Numerator released a report on Supplemental Nutrition Assistance Program (SNAP) recipients. SNAP recipients account for 24% of total CPG spending. Among the consumer behavior and profile learnings are:
- 45% have children
- 37% are Gen Z or Millennial
- SNAP recipients are on average paying 13% more per unit in Q4 compared to 11% for non-SNAP consumers
- SNAP recipients are 56% more likely to purchase CPG items at dollar stores, 24% more likely at convenience stores, and 12% more likely at mass retailers
- SNAP recipients are 37% more likely to eat out four or more times per week
SNAP recipients received one of the largest COLA increases of 12.5% in October to adjust for the impact of inflation. The SNAP reductions should be seen in March compared to February despite the COLA increase.
