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Perrigo Company’s (PRGO - Analyst Report) first quarter fiscal 2013 (ended September 29, 2012) earnings of $1.27 per share (including a tax benefit of 8 cents but excluding other special items) increased 15.5% from the year-ago period driven by higher revenues. The Zacks Consensus Estimate was $1.24 per share.

Net sales in the reported quarter climbed 6% to $770 million. Revenues were aided by the inclusion of $19 million of net sales from Paddock Laboratories (acquired by Perrigo in 2011) and $9 million from CanAm Care (whose assets were acquired by Perrigo in January 2012). Newly launched products boosted revenues by $26 million. Revenues fell short of the Zacks Consensus Estimate of $824 million.

Quarter in Detail

Perrigo reports revenue from the following five segments: Consumer HealthCare (CHC), Nutritionals, Rx Pharmaceuticals, Active Pharmaceutical Ingredients (API) and other.

Consumer Healthcare: Perrigo reported CHC revenue of $450 million in the first quarter of fiscal 2013, up 9% over the prior year. Net sales growth was driven by improved sales of existing products primarily in the cough/cold, contract and smoking cessation units along with strong new product sales, mainly in the gastrointestinal, cough/cold and dermatological care units.

Segmental sales were also aided by the inclusion of results of CanAm Care. Adjusted gross profit for the segment climbed 12.6% to $146.9 million in the first quarter of fiscal 2013.

Nutritional: Perrigo reported Nutritional quarterly revenue of $103 million, down 13.7%. Segmental results were hurt by reduced sales of existing products primarily in the vitamin, minerals and dietary supplements division. Adjusted gross profit for the segment declined 18.4% to $28.9 million in the first quarter of fiscal 2013.

Rx Pharmaceuticals: The Rx Pharmaceuticals segment performed impressively with net sales climbing 28% to $163 million in the first quarter of fiscal 2013. The increase was primarily driven by the acquisition of Paddock Laboratories.

Moreover, strong sales of newly launched products coupled with favorable pricing also aided results in the reported quarter. Adjusted gross profit for the segment climbed 25% to $95 million in the first quarter of fiscal 2013.

Active Pharmaceutical Ingredients: The company reported API sales of $36.4 million, down 23.6% over the prior year quarter. Results were hurt by reduced sales of existing products.

Other: Segmental sales declined 5.5% to $17 million. Foreign currency movements negatively impacted results.

Fiscal 2013 Projection

Apart from announcing financial results, Perrigo upped its earnings projection for fiscal 2013. The company now expects adjusted earnings per share for fiscal 2013 in the range of $5.45-$5.65, up 9%-13% year over year (previous guidance: $5.30-$5.50). The Zacks Consensus Estimate for fiscal 2013 currently stands at $5.49 per share.

Our Recommendation

We currently have a Neutral recommendation on Perrigo. The stock carries a Zacks #2 Rank (short-term Buy 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 active pharmaceuticals ingredient (API) businesses are expected to drive growth in the coming quarters.

We note that Perrigo’s dominant position in the store brand OTC drug market was further strengthened recently when it gained tentative approval from the US Food and Drug Administration (FDA) to market its store brand version of Merck & Co.'s (MRK - Analyst Report) Zegerid OTC. We are also impressed by Perrigo’s strong pipeline.

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