On November 8, 2018 Perrigo Company plc (NYSE; TASE: PRGO) reported financial results for the third quarter ended September 29, 2018 (Press release, Perrigo Company, NOV 8, 2018, View Source [SID1234530975]).
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Refer to Tables I – VI at the end of this press release for a reconciliation of non-GAAP measures 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 Sheets and Statements of Cash Flows.
Reported net sales for the third quarter of calendar year 2018 were approximately $1.1 billion, which included new product sales of $35 million, partially offset by discontinued products of $9 million. Adjusted net sales decreased 5.7% on a constant currency basis. Unfavorable currency movements impacted net sales by $12 million.
Reported net loss was $68 million, or $0.49 per diluted share, versus net income of $45 million, or $0.31 per diluted share, in the prior year. Excluding charges as outlined in Table I, third quarter 2018 adjusted net income was $150 million, or $1.09 per diluted share, versus adjusted net income of $197 million, or $1.39 per diluted share, for the same period last year.
CHC Americas segment reported net sales were relatively flat compared to last year. Strong net sales in the smoking cessation, infant formula and dermatological categories coupled with new product sales of $13 million, were offset by lower net sales in the animal health and gastrointestinal categories and discontinued products of $1 million. Excluding the animal health business, net sales in the CHC Americas segment grew approximately 3%, on a constant currency basis.
CHC Americas third quarter reported gross profit margin was 31.0%. Adjusted gross profit margin was 32.7%, lower than the prior year due primarily to the animal health business, operating inefficiencies and relatively higher input costs.
Reported third quarter operating margin was (20.8)%. Third quarter adjusted operating margin was 19.0%, lower than the prior year due primarily to adjusted gross margin flow through.
CHC International net sales increased approximately 1%, excluding $2 million in net sales from exited businesses in 2017 and unfavorable foreign currency movements of $10 million. Growth was driven by net sales in the analgesic, anti-parasite and personal care categories in addition to new product sales of $19 million. Partially offsetting this growth were lower net sales in the lifestyle category and non-branded U.K. businesses. Discontinued products were $5 million.
Third quarter reported gross margin was 46.6%. Adjusted gross margin increased 120 basis points over the previous year to 52.6%, driven primarily by adjusted gross margin improvement initiatives including new product margin contributions.
Reported operating margin was (0.6)%. Adjusted operating margin expanded 230 basis points to 18.7% driven by gross margin flow through and improved operating leverage
RX reported net sales of $179 million were lower due primarily to challenging market dynamics in a number of authorized generic products and customer service challenges, resulting in lower sales volumes. Discontinued products were $4 million.
Reported gross margin was 41.0%. Adjusted gross margin was 52.3%, 260 basis points lower than the same quarter last year, due primarily to unfavorable product mix.
Reported operating margin was 20.1%. Adjusted operating margin was 31.9% compared to 42.4% in the prior year, due primarily to a 580 basis points increase in R&D investments as a percentage of net sales, compared to the prior year and adjusted gross margin flow through. R&D as a percentage to net sales was approximately 11% in the quarter.
Impairment
During the three months ended September 29, 2018, the animal health reporting unit continued to experience declines in its year-to-date financial results and had additional indications of impairment due to changes in channel dynamics, a strategic decision to re-prioritize our brands, and a decline in the forecasted outlook of the reporting unit. As a result, the Company realized an impairment in goodwill and intangible assets in this reporting unit within CHC Americas of approximately $213 million.
Guidance
The Company now expects calendar year 2018 net sales to be approximately $4.72 billion. The Company also expects calendar year 2018 adjusted diluted EPS in the range of $4.45 to $4.65, primarily due to revised expectation in the RX segment. In addition, reduced margin expectations in the CHC Americas segment are expected to be partially offset by improved margin expectations in the CHC International segment.
Conference Call
The Company will host a conference call at 8:30 a.m. EST (5:30 a.m. PDT), November 8, 2018. The conference call will be available live via webcast to interested parties in the investor relations section of the Perrigo website at View Source or by phone at 888-317-6003, International 412-317-6061, and reference ID #4651574. A taped replay of the call will be available beginning at approximately 12:00 p.m. (EST) Thursday, November 8, until midnight November 15, 2018. To listen to the replay, dial 877-344-7529, International 412-317-0088, and use access code 10125751.