Perrigo Company plc Reports First Quarter 2016 Financial Results

DUBLIN, May 12, 2016 /PRNewswire/ -- Perrigo Company plc (NYSE: PRGO; TASE) today announced results for the first quarter ended April 2, 2016.

Perrigo's CEO John T. Hendrickson commented, "It is an honor and privilege to be the tenth and newest CEO of Perrigo and I see a bright future for this great company. During my 27-year tenure, we have experienced numerous highs and lows, but the strength of our consolidated business model has always prevailed. The power of Perrigo lies in the foundation of our Consumer Healthcare business, which continues to experience record operating performance, combined with our unique Rx portfolio and the broad European reach of the Branded Consumer Healthcare business. The Rx segment delivered strong margins in an increasingly challenging pricing and competitive environment. While the BCH business continues to grow, there are challenges that our European team, led by EVP and General Manager Sharon Kochan, is already working hard to address.

In addition, as part of my strategy to improve shareholder value across our global platform, I am pleased to announce that Judy Brown will take on an expanded role as EVP, Business Operations and CFO. In this role, Judy will have leadership of our Global Product Portfolio and Global Shared Services platform complementing her responsibilities for corporate development, finance, strategy and communications. I look forward to being out on the road with Judy to meet with our shareholders in the coming months. The business that we have built over the past 129 years and our talented employees around the world have positioned Perrigo well for the future."

Refer to Tables I, II, III, and 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 Condensed Consolidated Statements of Operations, Balance Sheet and Statements of Cash Flows.

First Quarter Results

*Adjusted net sales excludes first quarter 2016 and 2015 net sales from VMS of $47 million and $38 million, respectively. The VMS business is currently held for sale.

Excluding any net sales contribution from VMS, adjusted net sales in the quarter were $1.34 billion, an increase of 33%, on a constant currency basis over the first quarter of 2015. This increase is attributable primarily to $318 million related to the inclusion of the BCH segment and 2% growth in the CHC segment on a constant currency basis, excluding net sales from VMS. New product sales were $74 million (including BCH new product sales of $31 million), which were offset partially by $39 million in discontinued products.

Excluding charges as outlined in Table I at the end of this release, first quarter 2016 adjusted net income increased 1% to $251 million or $1.75 per diluted share versus $1.85 for the same period last year.

Segment Results

Consumer Healthcare

*Adjusted net sales excludes first quarter 2016 and 2015 contributions from VMS of $47 million and $38 million, respectively. The VMS business is currently held for sale.

Adjusted net sales in the first quarter grew 2% on a constant currency basis over the first quarter of 2015, excluding net sales from VMS in both periods. This increase reflects new product sales of $31 million and a net increase in sales volumes of existing products of $17 million (primarily in the infant formula and smoking cessation categories, offset partially by decreases in the analgesics and cough & cold categories primarily due to the extremely mild cough/cold season). These increases were offset partially by discontinued products of $32 million.

Despite the extremely mild cough/cold season, the CHC segment achieved a solid first quarter adjusted gross profit margin of 33.8%, an increase of 140 basis points compared to last year, driven by improved product mix and supply chain efficiencies.

Adjusted operating margin increased 90 bps to 18.7% compared to the prior year due to higher gross profit contribution and relatively flat operating expenses.

Branded Consumer Healthcare

Net sales of $318 million in the first quarter included new product sales of $31 million, as well as a contribution of $37 million from the GSK portfolio and Yokebe acquisitions.

First quarter adjusted gross profit percent to sales was 51.9% and adjusted operating income was $25 million, or 7.8%.

Rx Pharmaceuticals

Net sales in the first quarter of $257 million, an increase of 2%, were driven by new product sales of $11 million and sales of $46 million related to recent product acquisitions, which were offset partially by a decrease in sales of existing products of $50 million.

First quarter adjusted operating income of $117 million decreased by 3% compared to the prior year, primarily driven by industry pricing and competitive pressures. 

Specialty Sciences

The Company recognized $88 million of royalty revenue in the first quarter related to global net sales of the Multiple Sclerosis drug Tysabri^®. Net sales included $1 million in unfavorable foreign currency movements.

Impairment Charges

In connection with the preparation of the Company's financial statements for the three month period ended April 2, 2016, the Company identified indicators of impairment associated with certain indefinite-lived intangible assets and goodwill acquired in conjunction with the Omega Pharma N.V. ("Omega") acquisition. The primary impairment indicators included the decline in the Company's 2016 performance expectations and a reduction in the BCH segment's long range revenue growth forecast, particularly in the lifestyle and natural health/VMS brands.

The assessment for indefinite-lived intangible asset impairment utilized the excess earnings method to determine fair value and resulted in an impairment charge of $273 million, which represented the difference between the carrying amount of the intangible assets and their estimated fair value. The change in fair value from previous estimates was due primarily to the changes in the current market and performance of the brands such that the evaluation of brand prioritization and product extensions or launches in new regions are being more focused to maximize the potential of all brands in the segments portfolio. The main assumptions supporting the fair value of these assets and cash flow projections assume revenue growth based on product line extensions, product life cycle strategies, and geographical expansion within the markets in which the BCH segment distributes products, gross margins consistent with historical trends, and advertising and promotion investments largely consistent with the segment's growth plans.

The assessment for goodwill impairment indicated that a portion of the goodwill acquired in the Omega acquisition was impaired as the reporting unit's fair value did not exceed its carrying value. The main assumptions supporting the cash flow projections assume revenue growth based on product line extensions, product life cycle strategies, and geographical expansion within the markets in which the reporting unit distributes products, gross margins consistent with historical trends, and advertising and promotion investments largely consistent with the reporting unit's growth plans. Based on the Company's preliminary evaluation and initial estimates of the fair value of the reporting unit, the Company recorded an estimated impairment charge of $194 million. The Company expects to finalize the fair value calculation during the second quarter of 2016, which could result in an adjustment to the preliminary impairment charge.

Both the indefinite-lived intangible asset impairment and preliminary goodwill impairment were recorded within Impairment charges on the Condensed Consolidated Statements of Operations within our BCH segment. Future performance different from the assumptions utilized in the quantitative analyses may result in additional changes in the fair value of the intangible assets and reporting unit. The Company will continue to monitor and assess the intangible assets for potential impairment should further impairment indicators arise, as applicable, and at least annually during its fourth quarter annual impairment testing.

Guidance

The Company continues to expect 2016 adjusted earnings to be between $8.20 and $8.60 per diluted share as compared to $7.59 in 2015, excluding the charges outlined in Table III at the end of this release. This range results in a year-over-year growth rate in adjusted earnings of 8% to 13% over 2015's adjusted earnings per diluted share. The Company also expects 2016 reported earnings to be between $2.44 and $2.84 per diluted share as compared to a loss of $0.23 in 2015. A reconciliation to GAAP measures is attached in Table III.

A conference call will begin at 8:00 a.m. (ET) live 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 877-248-9413, International 973-582-2737, and reference ID # 4242218. A taped replay of the call will be available beginning at approximately 11:00 a.m. (ET) on May 12, 2016 until midnight on May 28, 2016. To listen to the replay, dial 800-585-8367, International 404-537-3406, and use access code 4242218.

About Perrigo        

Perrigo Company plc, a top five global over-the-counter ("OTC") consumer goods and pharmaceutical company, offers patients and customers high quality products at affordable prices. From its beginnings in 1887 as a packager of generic home remedies, Perrigo, headquartered in Ireland, has grown to become the world's largest manufacturer of OTC products and supplier of infant formulas for the store brand market. The Company is also a leading provider of generic extended topical prescription products and receives royalties from Multiple Sclerosis drug Tysabri®. Perrigo provides Quality Affordable Healthcare Products® across a wide variety of product categories and geographies primarily in North America, Europe, and Australia, as well as other markets, including Israel, China and Latin America.

A copy of this announcement will be available on Perrigo's website at www.perrigo.com.

Calendar-Year Data

Calendar-year data for 2015 was derived from the Company's audited results for the six-month period ended December 31, 2015 and unaudited results for the fiscal quarters ended March 28, 2015 and June 27, 2015.

Forward-Looking Statements

Certain statements in this press release are "forward-looking statements." These statements relate to future events or the Company's future financial performance and involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, performance or achievements of the Company or its industry to be materially different from those expressed or implied by any forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "intend," "believe," "estimate," "predict," "potential" or the negative of those terms or other comparable terminology. The Company has based these forward-looking statements on its current expectations, assumptions, estimates and projections. While the Company believes these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond the Company's control, including the timing, amount and cost of share repurchases, future impairment charges, our ability to achieve our guidance and the ability to execute and achieve the desired benefits of announced initiatives. These and other important factors, including those discussed under "Risk Factors" in the Company's Form 10-KT for the six-month period ended December 31, 2015, and Form 10-Q for the quarter ended April 2, 2016 as well as the Company's subsequent filings with the SEC, may cause actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. The forward-looking statements in this press release are made only as of the date hereof, and unless otherwise required by applicable securities laws, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Measures       

This press release contains non-GAAP measures. The reconciliation of these measures to the most comparable GAAP measures is included at the end of this press release. As a part of these non-GAAP measures, we report sales performance using the financial measure of "constant currency". We believe this provides meaningful information to assist our shareholders in understanding our financial results and true operational performance by assuming that foreign exchange rates had not changed between the prior and current period. The comparisons presented at constant currency reflect current year results translated at the prior year's exchange rates. This includes the royalty revenue related to Biogen Inc.'s sales of its Multiple Sclerosis drug Tysabri® included in the Specialty Sciences Segment.      

A copy of this press release, including the reconciliations, is available on our website at www.perrigo.com.