On November 6, 2019 Perrigo Company plc (NYSE; TASE: PRGO), a leading global provider of "Quality, Affordable Self-Care ProductsTM", reported financial results for the third quarter ended September 28, 2019 (Press release, Perrigo Company, NOV 6, 2019, View Source [SID1234550404]).

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President and CEO Murray S. Kessler commented, "Our transformation to a consumer self-care company gained significant momentum during the third quarter as a number of our strategic initiatives began to take effect. Through both organic and inorganic growth, our global consumer net sales increased more than 3% and our adjusted net sales increased nearly 10% versus the prior year, excluding exited businesses and currency, helping Perrigo deliver its fourth consecutive quarter of meeting or exceeding adjusted EPS expectations."

Kessler continued, "While we are still in the early stages of our transformation, announced at our Investor Day in May, our organization is energized by the progress that has been made this year, and we are confident in our ability to recapture the Perrigo Advantage."

Key Financial Highlights

GAAP ("reported") consolidated net sales of $1.2 billion in the third quarter increased 5.1% versus the third quarter 2018.
Worldwide Consumer reported net sales were $961 million for the third quarter, up 3.3% versus the third quarter 2018. Excluding exited businesses and currency from the prior year comparison, Worldwide Consumer adjusted net sales increased 9.5%.
Third quarter 2019 reported diluted earnings per share ("EPS") was $0.67, as compared to a loss of $0.49 per diluted share in the third quarter 2018.
Adjusted diluted EPS was $1.04 per diluted share versus $1.09 a year ago. Refer to Table I at the end of this press release for a complete description of non-GAAP adjustments to diluted EPS, which includes $0.11 per share for the voluntary global recall of ranitidine.
The Company expects 2019 reported diluted EPS to be in the range of $2.01 – $2.21 per share. The Company is raising its 2019 adjusted diluted EPS range to $3.85 – $4.05 from $3.75 – $4.05.
Third Quarter Reporting Segments Updated to Include Ranir

The Company has finalized operational reporting lines where the U.S. operations of Ranir will be included in the Consumer Self-Care Americas ("CSCA") segment and Ranir’s non-U.S. operations will be included in the Consumer Self-Care International ("CSCI") segment. These businesses will comprise the newly formed ‘oral self-care category’ in each segment. This update is reflected in this quarter’s financial statements and had no impact on the Company’s historical consolidated results of operations.

Refer to Tables I – V 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.

Consolidated Third Quarter 2019 Results Versus Third Quarter 2018

Reported consolidated net sales increased 5.1% to $1.2 billion. Adjusted net sales increased 10.2% compared to last year, when exited businesses are excluded from the prior year comparison and currency rates are kept constant. This increase was driven by the addition of Ranir, new product sales of $52 million and increased demand for existing products. Discontinued products were $9 million.

Reported net income was $92 million, or $0.67 per diluted share, versus a loss of $68 million, or a loss of $0.49 per diluted share, in the prior period. Excluding certain charges as outlined in Table I, third quarter 2019 adjusted net income was $142 million, or $1.04 per diluted share versus $150 million, or $1.09 per diluted share, for the same period last year. The adjusted diluted EPS was lower due primarily to a one- time tax-depreciation benefit in the prior year of $0.05 per diluted share.

Worldwide Consumer Self-Care Third Quarter 2019 Results Versus Third Quarter 2018

Worldwide Consumer reported net sales for the third quarter of 2019 were $961 million, an increase of 3.3%. Adjusted net sales of $968 million were 9.5% higher, excluding exited businesses and unfavorable currency movements from the prior year comparison.

Third quarter reported gross profit margin was 35.5%. Adjusted gross profit margin of 40.4% was 40 basis points lower as favorable product mix was more than offset by the addition of Ranir oral self-care products, which have a lower gross margin profile than the existing portfolio.

Reported operating margin was 3.6%. Adjusted operating margin was 15.8%, or 40 basis points lower due primarily to gross margin flow-through.

CSCA Third Quarter 2019 Results Versus Third Quarter 2018

Consumer Self-Care Americas reported net sales of $613 million increased 2.9%. Excluding $28 million from exited businesses and currency changes from the prior year comparison, CSCA adjusted net sales increased 9.1% to $619 million, which included the addition of $54 million of net sales from the acquisition of Ranir.

Sales growth was driven primarily by 1) the acquisition of Ranir, 2) increased consumer demand for store brand allergy products, 3) higher sales in the smoking cessation category, and 4) new product sales of $6 million in the quarter.

This sales growth was partially offset by 1) purposefully exited businesses, 2) lower infant formula contract pack sales, and 3) lower net sales in the segments Mexican business.

Third quarter reported gross profit margin was 30.2%. Adjusted gross profit margin of 34.0% was 40 basis points higher due primarily to favorable OTC product mix.

Reported operating margin was 13.3%. Adjusted operating margin was flat at 19.8%, as gross margin flow-through and lower administration expenses were offset by operational inefficiencies and increased investments to drive innovation.

CSCI Third Quarter 2019 Results Versus Third Quarter 2018

Consumer Self-Care International reported net sales increased 4.0% to $348 million. Excluding unfavorable currency movements of $19 million, from the prior year comparison, adjusted net sales were higher by 10.1%. Excluding currency and Ranir, CSCI organic adjusted net sales grew 3.3%.

This sales growth was due primarily to 1) strong new product sales of $28 million driven by the launch of XLS Forte 5, a next generation weight loss product, and new products in the Phytosun naturals portfolio, 2) $23 million of net sales from Ranir, and 3) higher net sales in the cough/cold/allergy/sinus category.

Reported gross margin was 45.0%. Adjusted gross margin of 51.9% declined 190 basis points due primarily to the addition of Ranir oral self-care products, which have a relatively lower gross margin than the overall portfolio.

Reported operating margin was 3.8% while the adjusted operating margin was 18.2%.

Prescription Pharmaceuticals ("RX") Third Quarter 2019 Results Versus Third Quarter 2018

RX reported net sales increased 13.6% to $230 million due primarily to higher volumes of existing products and new product sales of $18 million. Discontinued products were $6 million.

Reported gross margin was 31.0% and adjusted gross margin was 40.9%. The 720 basis point decline in adjusted gross margin was due primarily to pricing pressure, higher cost of goods and adverse product mix.

Reported operating margin was 8.5% and adjusted operating margin was 24.0%.

Outlook

The Company expects 2019 reported diluted EPS to be in the range of $2.01 – $2.21 per share. With strong performance in the Worldwide Consumer businesses, the Company raised its 2019 adjusted diluted EPS guidance to $3.85 – $4.05 from $3.75 – $4.05.