Perrigo reported Q1 adjusted EPS of $.45 vs. $.33 last year and consensus expectations of $.43. The adjusted EPS includes $.15 of one-time items including $.10 for product recalls and $.05 for HRA transition sales returns.
Sales acceleration – Sales grew 13.0% in constant currencies with organic net sales growth of 6.4%, accelerating sequentially from 1.5%.
CSCA – Constant currency sales growth was 7.6%. Upper Respiratory sales increased 1% driven by Nasonex and other allergy products. The Latin American business divestiture was a 1.8% point headwind. The OTC product recall and higher prevalence of cough/cold and flu were also headwinds. Lower supply availability was a $20-25M foregone sales opportunity. Management expects to be back in stock for the fall. Nutrition sales increased 10% due to Fx. FDA changes to infant formula will lead to lower supplies and higher prices. Digestive Health sales increased 4.7% due to Polyethylene Glycol 3550 somewhat offset by the Latin American divestment impact of 1.8% of sales. Pain & Sleep Aids sales increased 0.6% due to children’s analgesics sales somewhat offset by the Latin American divestment impact of 5.2%. Oral Care sales increased by 19.9%. Healthy Lifestyle sales increased 8.6%. Skin Care sales increased 27.9% driven by wound care products. Women’s Health sales increased by 45.1% due to the HRA acquisition. Vitamins, Minerals, and Supplements sales decreased by 7.5% due to the 29% impact from the Latin American divestment.
CSCI – Constant currency sales growth was 23.6% while reported sales growth increased 14.7%. Skin Care sales increased 26.1% in constant currencies. Upper Respiratory sales increased 35.9% in constant currencies, with limited impact from out of stocks. Healthy Lifestyle increased by 17.3%. Vitamins, Minerals, and Nutrition increased by 1.4%. Paid & Sleep aids revenue increased by 0.2%. Women’s Health sales increased by 125.5% driven by the HRA acquisition. Oral Care sales increased by 6.9% in constant currencies. Digestive Health sales increased 64.9% in constant currencies driven by the HRA acquisition.
Margins expanding further – Overall gross margins expanded 400bps in Q1, improving from +350bps in Q4. The product recalls and HRA distributor transition had a -130bps impact on gross margins. CSCA gross margins expanded by 310bps as the HRA acquisition, pricing, favorable volume/mix, and inflation were somewhat offset by COGS inflation, inflation, and OTC product recalls. CSCA operating margins expanded by 70bps. CSCI gross margins expanded by 470bps due to the HRA acquisition, pricing, and new products. The overall operating margin expanded 200bps YOY or 240bps YOY in constant currencies. CSCI operating margins expanded by 230bps. Overall operating margins expanded by 200bps.
Outlook reaffirmed - Management reaffirmed the EPS range of $2.50-2.70 and organic growth of 3-6%. The full outlook is below:
Murray Kessler also announced his intention to retire after five years as CEO, about 14 months before his contract was scheduled to end. When he was appointed as CEO he was Perrigo’s third CEO in one year. Murray Kessler’s tenure included a tax lawsuit looming, the sale of the generic drug business, the major acquisition of HRA, a global pandemic and its impact on the supply chain, a national infant formula shortage, and the transition to a consumer healthcare company. He leaves on a much quieter note in healthy industry conditions, with Damocles' sword removed, the industry following his strategic lead, and the company benefiting from several growth tailwinds. With the company’s leverage, the future direction of the company is locked into executing the strategy and deleveraging. Going forward the company would benefit from a CEO with an operational background.
