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Perrigo Company (PRGO - Analyst Report) reported earnings per share of $1.20 for the second quarter of fiscal 2012, beating the Zacks Consensus Estimate of $1.16 and the year-earlier earnings of $1.05 per share. Robust top-line performance boosted earnings in the quarter.
Second quarter revenues increased approximately 17% over the prior year to $838.2 million. Total revenues were also above the Zacks Consensus Estimate of $810 million. Strong performance by the Rx Pharmaceuticals and Consumer Healthcare segments led to the solid top line in the quarter. New products also boosted growth in the quarter.
Quarter in Detail
The revenue performance in the quarter from four of the company’s businesses is detailed below.
Consumer Healthcare (CHC): Perrigo reported CHC revenue of $471 million in the second quarter, up 10% over the prior year. Revenues also rebounded sequentially from $412 million reported in the first quarter of fiscal 2012. The revenue growth was driven by the new product sales, particularly the diabetes franchise and over-the-counter (OTC) store brand version of generics of Sanofi’s (SNY - Analyst Report) Allegra (for seasonal allergies) which is off to a strong start.
Foreign exchange, however, negatively impacted CHC revenue by about $2 million. Both adjusted gross as well as operating margins in the segment declined due to increased competition in the gastrointestinal category.
Nutritional: Perrigo reported Nutritional quarterly revenue of $128 million, which declined 4% from the prior-year quarter as sales of infant formula and vitamin, mineral and supplement (VMS) products declined. Infant formula sales were impacted by market slowdown due to a decline in birth rates in the US.
Moreover, competitor product recalls which benefited the prior year quarter were missing in the reported quarter, thus pulling down infant formula revenues. VMS sales were affected by additional competitive pressures. The Nutritional segment witnessed a decrease in both adjusted gross and operating margins due to product mix and higher commodity costs for infant formula.
Rx Pharmaceuticals: Perrigo reported a huge jump in Rx Pharmaceuticals revenue to $177.2 million in second quarter of fiscal 2012, up 82% over the prior year primarily driven by acquisition of Paddock Labs (July 2011). Higher sales of new products reduced pricing pressure and market share gains also benefited revenue. The segment’s adjusted gross as well as operating margins were also up from prior-year levels.
Active Pharmaceutical Ingredients (API): The company reported API sales of $43 million, up approximately 6% over the prior year. API revenues were however, down sequentially from $48 million reported in the first quarter of fiscal 2012.
Fiscal 2012 Guidance Revised
Perrigo upped the lower end of fiscal 2012 adjusted earnings per share outlook from $4.65–$4.80 to $4.70–$4.80. The guidance was increased despite expectations for a higher effective tax rate in the year which is expected to be offset by continued strong revenue growth in the second half of fiscal 2012. The Zacks Consensus earnings estimate for 2012 of $4.74 is within the guidance range.
In the second half of fiscal 2012, Perrigo plans to launch the generic version of Johnson and Johnson’s (JNJ - Analyst Report) Prevacid, Sanofi’s AllegraD12 and Adams Respiratory Therapeutics’ Mucinex.
We currently have a Neutral recommendation on Perrigo. The stock carries a Zacks #3 Rank (short-term Hold rating).
We believe Perrigo has a sustainable and diversified product portfolio. The company’s strong position in the brand OTC pharmaceutical market and growing generics and API businesses can help it deliver solid top- and bottom-line growth in the coming years.
Perrigo also has a very strong and impressive pipeline which could drive growth in fiscal 2012 and beyond. We are, however, concerned about the competitive pressures faced by the CHC segment which accounts for majority of the company’s revenues.