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Perrigo (PRGO) Beats on Q3 Earnings, Revenues; View Intact

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Perrigo Company plc's (PRGO - Free Report) third-quarter 2016 earnings of $1.65 per share beat the Zacks Consensus Estimate of $1.59. Reported earnings, however, declined 6% from the year-ago figure. The company's shares are up around 4% in pre-market trading.

Including amortization and restructuring charges and other one-time items, Perrigo incurred a loss of $8.76 per share in the third quarter of 2016.

Net sales in the reported quarter inched up 1% to $1.36 billion primarily driven by growth across all its business segments. Revenues also surpassed the Zacks Consensus Estimate of $1.28 billion.

Quarterly Highlights

Perrigo reports revenues under the following segments – Consumer Healthcare, Branded Consumer Healthcare (created as a result of the Mar 2015 Omega Pharma acquisition), Prescription Pharmaceuticals (Rx) and Specialty Sciences.

Excluding net contribution from the held-for-sale businesses (primarily the U.S. Vitamins, Minerals and Supplements/VMS business within the Consumer Healthcare segment), adjusted net sales in the quarter came in at $1.33 billion, up 2% (3% on a constant-currency basis) from the year-ago period. New product sales of $79 million were partially offset by $10 million for discontinued products.

Consumer Healthcare: Consumer Healthcare net sales in the third quarter of 2016 came in at $669 million, down 1% due to the sale of the VMS business, which had contributed to segmental sales in the prior year.

Adjusted net sales in the segment came in at $634 million, up 2% (3% on a constant-currency basis) from the year-ago quarter. Growth was driven by new product sales of $33 million, which included the store brand launches of fluticasone nasal spray and a couple of products in the guaifenesin family, as well as increased sales in the infant nutrition and smoking cessation categories. These were offset partially by a decrease of $12 million in sales of existing products primarily due to price erosion in the analgesics, cough and cold, and animal health categories, lower sales in the antacids category, and discontinued products of $6 million.

Branded Consumer Healthcare: Perrigo reported net sales of $304 million, up 1% from the year-ago period. Adjusted net sales (excluding sales from a European sports brand, which is currently held-for-sale) grew 2% on a constant-currency basis.

New product sales and acquisitions contributed $26 million and $18 million, respectively, which were offset by lower sales in the lifestyle and natural health/vitamins categories.

Rx Pharmaceuticals: The Rx Pharmaceuticals segment performed encouragingly during the quarter, with net sales rising 3% (4% on a constant-currency basis) to $267 million driven by $32 million related to recent product acquisitions and new product sales of $18 million. These were partially offset by a decrease in existing product sales of $41 million due to price erosion across the portfolio.

Specialty Sciences: Segmental revenues comprised royalties of $93 million received by Perrigo on net sales of Biogen Inc.’s (BIIB - Free Report) multiple sclerosis drug Tysabri, up 10% (11% on a constant-currency basis) year over year.

2016 Earnings Outlook Intact

Perrigo maintained its 2016 earnings outlook. The company continues to expect 2016 earnings in the range of $6.85 to $7.15 per share. The Zacks Consensus Estimate for earnings is pegged at $7.02 for 2016.

In a separate press release, Perrigo announced that as part of its ongoing strategic portfolio review (to be complete in the first quarter of 2017), the company has started exploring strategic alternatives for Tysabri royalty stream in order to monetize the asset.

Perrigo has hired investment bank Morgan Stanley (MS - Free Report) as its financial advisor to lead the review process for the transaction.

We remind investors that the royalty divestment of Tysabri is one of the actions proposed by New York-based activist investor Starboard Value LP, in a letter wherein it revealed its 4.6% stake in Perrigo and suggested steps for improving the company’s dismal operating and financial performance.

In another press release, Perrigo announced the appointment of two new independent directors to the company’s board – Geoffrey M. Parker and Theodore R. Samuels. While Parker’s appointment was effective Nov 7, 2016, Samuels will join the board on Jan 4, 2017.

PERRIGO CO PLC Price

Zacks Rank & Another Stock to Consider

Perrigo is a Zacks Rank #2 (Buy) stock. Another favorably placed stock in the health care sector is Anika Therapeutics (ANIK - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Anika’s earnings estimates increased from $1.96 to $2.06 for 2016 and from $2.03 to $2.09 for 2017 over the last 60 days. The company has posted a positive surprise in  the four trailing quarters with an average beat of 33.14%. Its share price has gained 14.2% year to date.

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