On April 30, 2020 Perrigo Company plc (NYSE; TASE: PRGO) reported financial results for the first quarter ended March 28, 2020 (Press release, Perrigo Company, APR 30, 2020, View Source [SID1234556848]).

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President and CEO Murray S. Kessler commented, "During these unprecedented times, I am honored to be surrounded by our more than 11,000 dedicated employees who are making tremendous sacrifices to help ensure that our essential products remain available to consumers and patients who need them. Our top priorities remain our employees’ well-being and business continuity, while at the same time supporting the communities where we live and work."

Kessler continued, "Thanks to these courageous employees, we were able to report another quarter of strong growth across all business segments with robust sales and profitability above expectations. While we started the year off with similarly strong trends that we experienced in the fourth quarter of 2019, our business surged significantly in March in response to the global demand created by the COVID-19 pandemic. Worth noting, not only did our team keep the business running, they also made significant further progress on our Consumer Self-Care transformation. Perrigo is clearly well-positioned for a ‘New-Normal’ future, which will need Quality, Affordable Self-Care Products more than ever before."

First Quarter Financial Highlights

Consolidated first quarter net sales were $1.3 billion, an increase of 14.2% compared to the prior year quarter. Excluding exited businesses(1) and the impact of currency, net sales increased 17.6%.
Worldwide Consumer first quarter net sales increased 16.2% compared to the prior year quarter. Excluding exited businesses and the impact of currency, Worldwide Consumer net sales were 20.7% higher year-over-year.
Consumer Self-Care Americas ("CSCA") achieved record first quarter net sales of $701 million, or growth of 20.4% versus the prior year quarter highlighted by 15.0% organic(2) growth; Consumer Self-Care International ("CSCI") first quarter net sales grew 9.1% versus the prior year quarter highlighted by 8.1% organic growth.
Reported diluted EPS for the first quarter of 2020 was $0.77 per diluted share as compared to EPS of $0.47 in the prior year quarter.
Adjusted diluted EPS for the first quarter of 2020 increased 6.5% to $1.14 as compared to $1.07 per diluted share in the prior year quarter.
See attached Appendix for reconciliation of adjusted (non-GAAP) to reported (GAAP) financial measures.

(1) Exited businesses excludes $20 million from the divested animal health business in the prior year period, which was previously included in the Consumer Self-Care Americas segment, and $4 million from the divested Canoderm prescription product in the prior year period, which was previously included in the Consumer Self-Care International segment. Full year 2019 net sales of Canoderm were $13 million and adjusted operating income was $8 million.

(2) Organic net sales growth excludes the 2019 acquisition of Ranir, exited businesses and the impact of currency.

Refer to Tables I – 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 Sheets and Statements of Cash Flows.

First Quarter 2020 Consolidated Results Versus First Quarter 2019

Consolidated net sales for the first quarter of calendar year 2020 increased 14.2% to $1.3 billion. Net sales increased 17.6% compared to the first quarter 2019, excluding exited businesses of $23 million and unfavorable currency movements of $13 million. This was driven by strong consumer demand for Worldwide Consumer products due to higher illnesses and higher allergens, new products including the launch of generic albuterol sulfate, and the addition of Ranir. These drivers were positively impacted by a surge in demand for certain products due to consumer and customer behavior surrounding the COVID-19 pandemic, which added an estimated $90 million to $110 million in net sales to Perrigo in the quarter. These gains were partially offset by pricing pressure, specifically in the Prescription Pharmaceuticals ("RX") segment, and $11 million in discontinued products. Organic net sales were up 11.0%.

Reported net income was $106 million, or $0.77 per diluted share, versus net income of $64 million, or $0.47 per diluted share in the prior year period. Excluding certain charges as outlined in Table I, first quarter 2020 adjusted net income was $157 million, or $1.14 per diluted share, versus $146 million, or $1.07 per diluted share, for the same period last year. The adjusted diluted EPS increase was due primarily to strong growth across the Worldwide Consumer businesses and the addition of Ranir. These were partially offset by RX business price erosion on testosterone gel 1.62%, which launched in the prior year with 180-day market exclusivity, exited businesses and a 200 basis points increase in the adjusted effective tax rate equating to $0.03 per share.

Worldwide Consumer Self-Care First Quarter 2020 Results Versus First Quarter 2019

Worldwide Consumer is comprised of the CSCA segment, CSCI segment and Corporate.

Worldwide Consumer Self-Care delivered record first quarter net sales of $1.1 billion, an increase of 16.2%. Net sales excluding $23 million in exited businesses and $14 million from the impact of currency increased 20.7%. Organic net sales were up 12.3%.

First quarter reported gross profit margin was 36.5%. Adjusted gross profit margin of 38.4%, was 220 basis points lower year-over-year due to 1) higher growth of lower margin store brand products, partially driven by the COVID-19 pandemic, 2) lower operational efficiencies due primarily to a carryover impact from 2019 and Company prioritization of products most needed by society during the COVID-19 pandemic, 3) the addition of Ranir oral self-care products, which have a lower gross margin profile than the existing portfolio, and 4) the impact from exited businesses. These more than offset the margin contribution of new products and positive pricing.

Reported operating margin was 8.7%. Adjusted operating margin was 14.0%, or 100 basis points higher year-over-year due primarily to operating leverage on gross margin flow-through, savings from Project Momentum and the addition of Ranir, which had a relatively higher operating margin profile than the existing portfolio in the quarter. These were partially offset by higher employee compensation costs, including a $4 million special bonus to front-line employees.

CSCA First Quarter 2020 Results Versus First Quarter 2019

Consumer Self-Care Americas achieved record first quarter net sales of $701 million, an increase of 20.4%, and included $55 million in net sales attributable to Ranir. Excluding the exited animal health business, CSCA net sales increased 24.8%. Organic net sales were up 15.0%.

The OTC business delivered solid net sales growth driven by 1) overall OTC category growth and increased demand related to COVID-19, 2) continued robust growth in e-commerce, 3) Perrigo market share gains from store brand competitors due to greater consumer purchases of existing and new products, and 4) increased store brand penetration market-wide versus national brands of 60 basis points according to IRI MULO data, for the 13-weeks ending March 22, 2020.

Growth in the nutrition business was driven by 1) infant formula category growth and increased demand related to COVID-19, 2) the December 2019 store brand infant formula launch at a major retailer, and 3) growth in customer e-commerce activities. These drivers were partially offset by lower contract pack sales, which were due to planned contract production and sales that took place in the fourth quarter 2019.

First quarter reported gross margin was 30.8%. Adjusted gross margin of 31.4% was 110 basis points lower than the prior year due primarily to 1) lower operational efficiencies related to a carryover impact from 2019 and Company prioritization of products most needed by society during the COVID-19 pandemic, and 2) the exited animal health business, which had a relatively higher gross margin. These were partially offset by favorable product mix and the addition of Ranir.

Reported operating margin was 17.8%. Adjusted operating margin increased 130 basis points to 19.6%, driven by operating leverage on gross margin flow-through and lower operating expenses resulting from Project Momentum savings.

CSCI First Quarter 2020 Results Versus First Quarter 2019

Consumer Self-Care International net sales increased 9.1% to $383 million. Excluding unfavorable currency movements of $13 million and exited businesses, net sales were higher by 14.1%. Organic net sales grew 8.1%.

Net sales growth was due primarily to 1) brand OTC sales attributed to COVID-19 in the upper respiratory and vitamins, minerals and supplements (VMS) categories, and growth in the U.K. store brand business, 2) strong new product sales of $30 million driven by new launches including XLS-Medical Forte 5 and in the ACO skincare line, and 3) $21 million in net sales from Ranir. These drivers were partially offset by lower net sales of existing products in weight management, which is within the healthy lifestyle category, and lower net sales in France.

Reported gross margin was 47.0%. Adjusted gross margin of 51.4% declined 250 basis points due primarily to the addition of Ranir oral self-care products, which have a relatively lower gross margin than the overall CSCI portfolio. In addition, lower operational efficiencies were partially offset by favorable brand product mix.

Reported operating margin was 6.5%. Adjusted operating margin of 16.7% improved 130 basis points due primarily to operating leverage on gross margin flow-through and lower advertising and promotion expense.

RX First Quarter 2020 Results Versus First Quarter 2019

RX net sales increased 6.5% to $258 million due primarily to new product sales of $58 million led by the launch of generic albuterol sulfate inhalation aerosol. This was partially offset by expected pricing pressure associated with testosterone gel 1.62%, which had 180-day market exclusivity in the first quarter of 2019. Discontinued products, consisting of lower margin distribution products, were $5 million.

Reported gross margin was 34.1% and adjusted gross margin was 42.3%. The 630 basis point decline in adjusted gross margin was due primarily to competitive price pressure and lower operational efficiencies compared to last year. These were partially offset by higher gross profit from the incremental sales of generic albuterol sulfate inhalation aerosol.

Reported operating margin was 20.0%. Adjusted operating margin was 28.7%, or 520 basis points lower due primarily to gross margin flow-through, which was partially offset by lower administrative expenses.

Fiscal 2020 Outlook

Due to the volatility and uncertainty associated with the COVID-19 pandemic and its potential impact on demand, the Company’s ability to manufacture and supply product and overall fluidity of the current environment, amongst other factors, the Company is not providing updated fiscal 2020 guidance at this time.