Perrigo Company plc Reports Second Quarter 2016 Financial Results

DUBLIN, Aug. 10, 2016 /PRNewswire/ --

• Delivered second quarter reported (GAAP) net sales of $1.48 billion and adjusted (non-GAAP) net sales of $1.44 billion, excluding sales of $44 million from held-for-sale businesses*
• Delivered second quarter reported net income of $194 million and reported diluted earnings per share of $1.35; delivered second quarter reported gross margin of 38.3%, and second quarter reported operating margin of 16.1%
• Realized adjusted net income of $278 million and adjusted diluted earnings per share of $1.93; achieved second quarter adjusted gross margin of 48.0% with second quarter adjusted operating margin of 27.3%
• Consumer–facing businesses achieved reported net sales of $1.08 billion, or  $1.04 billion excluding sales from held-for-sale businesses, comprising in excess of 70% of reported and adjusted net sales in the quarter
• Realized Consumer Healthcare ("CHC") segment reported operating margin of 16.2% with adjusted operating margin of 20.7%; Branded Consumer Healthcare ("BCH") segment reported operating margin of 9.8% with adjusted operating margin of 14.9%.

Outlook:

Primarily due to revised expectations for the Rx segment, the Company now expects calendar year 2016 reported earnings per diluted share in the range of $0.26 to $0.56 (compared to a loss of $0.23 in calendar year 2015) and expects calendar year 2016 adjusted earnings per diluted share in the range of $6.85 to $7.15.

* Held-for-sale businesses include the U.S. VMS business (CHC segment), sales attributable to the Etixx brand (BCH segment) and India API business (Other segment)

Perrigo Company plc (NYSE: PRGO; TASE) today announced results for the second quarter ended July 2, 2016.

Perrigo's CEO John T. Hendrickson commented, "Over my first 100 days I have been critically looking at our business through the lens of the leadership principles I have previously outlined. My unequivocal conclusion is that despite some short-term challenges, I continue to be excited about Perrigo's future. To be clear, our financial results were below our expectations primarily due to competition and price erosion in the Rx business.  Adjusted net sales in our consumer-facing businesses were generally in-line with our expectations, highlighted by solid adjusted operating margins in both segments with nearly 21% in our CHC segment and 15% in the BCH segment.

I am disappointed however to announce that following this critical review of our businesses, we are changing adjusted EPS guidance for 2016. The majority of this change is due to revised expectations for price erosion and continued fluid market dynamics affecting the Rx business. In addition, we are revising our guidance on lower performance expectations for the BCH segment as we continue to implement transformational organizational changes and improvements in products and process in this business. Given these effects, we now anticipate our calendar 2016 adjusted EPS guidance to be in the range of $6.85 to $7.15. While there is much change underway at Perrigo, please know that I remain committed to the principles that I outlined in May: operational execution, action-oriented, transparency, and above all, shareholder value."

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 and Balance Sheets.

Reported net sales in the quarter were $1,481 million, a decrease of 3% over the second quarter of 2015 due primarily to relatively lower sales in the Consumer Healthcare segment, offset partially by higher sales in the Rx segment. Excluding any net sales contribution from held-for-sale businesses, adjusted net sales in the quarter were $1,437 million, a decrease of 3%, on a constant currency basis over the second quarter of 2015. New product sales of $89 million were offset partially by $16 million in discontinued products.

Reported net income of $194 million, or $1.35 per share, included the favorable impact of a $30 million reduction in the non-cash goodwill impairment recorded in the first quarter of 2016, versus net income of $56 million, or $0.38 per share, in the prior year. Excluding charges as outlined in Table I at the end of this release, second quarter 2016 adjusted net income was $278 million, or $1.93 per share, versus adjusted net income of $320 million, or $2.18 per share for the same period last year.

Reported net sales in the CHC segment decreased 8% over the second quarter of 2015 and adjusted net sales, excluding VMS net sales in both periods, declined 8% on a constant currency basis. This decrease was due to lower sales in existing products of $84 million primarily in the cough/cold category driven by a relatively weak allergy season as compared to last year, the timing of promotions, lower orders in the contract manufacturing business and the effects of relatively lower pricing in the analgesics category. In addition, discontinued products were $12 million. These decreases were offset partially by new product sales of $32 million, which included the store brand launch of fluticasone nasal spray and new products in the infant formula category.

Despite the relatively weak allergy season, the CHC segment achieved a second quarter reported gross profit margin of 33.5% and an adjusted gross profit margin of 36.6% driven by strong performances in the infant formula and smoking cessation categories as well as supply chain efficiencies.

Reported operating margin decreased 300 bps to 16.2% due to an impairment charge recorded on the held-for-sale VMS business and increased R&D investments, offset partially by lower selling and administrative expenses. Adjusted operating margin decreased 70 bps to 20.7% compared to the prior year due to increased R&D investments, offset partially by lower selling and administrative expenses.

Reported net sales decreased 2% over the second quarter of 2015 and adjusted net sales declined 2% on a constant currency basis. New product sales and acquisitions contributed $28 million and $29 million, respectively, offset by lower sales in the lifestyle and natural health/vitamins categories, which experienced a lifestyle category new product launch in the second quarter of 2015.

Second quarter reported gross profit was $173 million. Adjusted gross profit decreased 12% to $187 million driven by product mix and a significant product launch in the prior year.

Reported operating income was $38 million and included $5 million of restructuring expenses, which were offset partially by previously announced strategic initiatives to better align promotional investments with net sales.  Adjusted operating income was $59 million due to relatively lower gross profit flow through than the prior year.

Net sales in the second quarter were $293 million, an increase of 5%, driven by $44 million related to recent product acquisitions and new product sales of $26 million, which were offset partially by a decrease in sales of existing products of $50 million due to price erosion across the portfolio and the lack of an exclusive market position for two key products versus the prior year.

Second quarter reported gross margin of 47.5% decreased due to higher amortization expense from recent product acquisitions. Competition and price erosion impacted both reported gross margin and adjusted gross margin, which decreased to 57.6%.

The Company recognized $90 million of royalty revenue in the second quarter related to global net sales of Tysabri^®.

Guidance

Primarily due to revised expectations for the Rx segment, the Company expects 2016 reported earnings to be between $0.26 and $0.56 per diluted share as compared to a loss of $0.23 in 2015. The Company expects 2016 adjusted earnings to be between $6.85 and $7.15 per diluted share, excluding the charges outlined in Table IV at the end of this release. See the attached Table IV for a reconciliation of Adjusted earnings per share (Non-GAAP) to Reported earnings per share (GAAP).

A conference call will begin at 8:30 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 # 51288785. A taped replay of the call will be available beginning at approximately 11:30 a.m. (ET) on Wednesday, August 10, 2016 until midnight on Friday, August 26, 2016. To listen to the replay, dial 800-585-8367, International 404-537-3406, and use access code 51288785.

About Perrigo

Perrigo Company plc, a leading global over-the-counter ("OTC") consumer goods and specialty pharmaceutical company, offers patients and customers high quality products at affordable prices. From its beginnings in 1887 as a packager of home remedies, Perrigo, headquartered in Ireland, has grown to become the world's largest manufacturer of OTC healthcare 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 the sales of the 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.

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, the ability to achieve its 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, 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 certain non-GAAP measures. A "non-GAAP financial measure" is defined as a numerical measure of a company's financial performance that excludes or includes amounts different than the most directly comparable measure calculated and presented in accordance with U.S. Generally Accepted Accounting Principles (GAAP) in the statements of income, balance sheets or statements of cash flows of the company. Pursuant to the requirements the U.S. Securities and Exchange Commission, the Company has provided a reconciliation for net sales on a constant currency basis, net sales excluding sales attributable to held-for-sale businesses, gross profit, operating income, net income, diluted earnings per share, gross margin, and operating margin within this press release to the most directly comparable U.S. GAAP measures for these non-GAAP measures.

The Company adjusts certain items from its operating results when monitoring and evaluating the on-going financial results and trends of its business, and believes that presenting operating results adjusted for these items is also useful for investors, since it provides important insight into the Company's on-going core business operations on a normalized basis. Management uses adjusted financial data for planning and forecasting in future periods, including trending and analyzing the core operating performance of the Company's business from period to period without the effect of the non-core business items indicated. Management also uses adjusted financial data to prepare operating budgets and forecasts and to measure the Company's performance against those budgets and forecasts on a corporate and segment level.

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

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