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Earnings Beat at Perrigo in Q4, Sales Dip

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Perrigo Company’s (PRGO - Free Report) fourth-quarter fiscal 2013 (ended June 29, 2013) earnings of $1.57 per share surpassed the Zacks Consensus Estimate by a penny. The company reported earnings of $1.28 per share in the final quarter of fiscal 2012. The year-over-year rise in earnings was due to higher revenues.

Net sales in the quarter climbed 16.3% to $967.2 million. Revenues increased $83 million due to the inclusion of results of Sergeant's Pet Care Products, Inc. (assets acquired by Perrigo in October 2012), Rosemont Pharma (acquired by Perrigo in February 2013), Velcera (acquired in April 2013) and Fera’s ophthalmic product portfolio (acquired in June 2013). Newly launched products boosted revenues by $30 million. Revenues missed the Zacks Consensus Estimate of $999 million. The revenue miss in the final quarter of fiscal 2013 impacted the shares negatively.

For fiscal 2013, Perrigo reported earnings of $5.61 per share (including a tax benefit of 8 cents) as against fiscal 2012 earnings of $4.99 per share (including a tax benefit of 28 cents per share). Perrigo had projected adjusted earnings per share for fiscal 2013 in the range of $5.53 – $5.73 per share. The Zacks Consensus Estimate for fiscal 2013 was $5.60 per share. Net sales in fiscal 2013 climbed 12% to $3.5 billion, just shy of the Zacks Consensus Estimate of $3.6 billion.

The Fourth Quarter in Detail

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

Consumer Healthcare: Perrigo reported CHC revenue of $563 million in the quarter, up 16% from the prior year. Net sales growth was driven by improved sales of existing products primarily in the contract and smoking cessation units, along with strong new product sales, mainly in the cough/cold and smoking cessation units.

Sales in the segment were also aided by results from Sergeant's Pet Care Products and Velcera. Adjusted gross margin for the segment climbed to 36% from 31.9% a year ago.

Nutritional: Perrigo reported revenue of $150 million, up 11% year over year. All the sub-groups of the segment witnessed growth during the reported quarter. Adjusted gross margin for the segment declined marginally to 28.9% in the fourth quarter of fiscal 2013. The decline was due to higher sales of vitamins, minerals and supplements which are low margin products.

Rx Pharmaceuticals: The Rx Pharmaceuticals segment performed encouragingly during the quarter with net sales improving 24% to $195 million. Sales of new products boosted segmental revenues by $12 million. Inclusion of results of Rosemont Pharma and Fera’s ophthalmic product portfolio boosted sales by $16 million. Adjusted gross margin for the segment increased to 56% from 51.6% a year ago.

Active Pharmaceutical Ingredients: The company reported API sales of $41 million, up 6% from the prior-year quarter. Results were aided by a favorable product mix.

Fiscal 2014 View

Perrigo expects earnings per share (on an adjusted basis) for fiscal 2014 in the range of $6.35 and $6.60, up 13%-18% over fiscal 2013 levels. The Zacks Consensus Estimate for fiscal 2014 currently stands at $6.67 per share. The projection excludes the impact of Perrigo’s impending acquisition of Elan Corporation . We remind investors that last month, Perrigo inked a definitive agreement to acquire Elan Corporation for approximately $8.6 billion in a bid to boost its revenue stream and save taxes.

The cash and stock deal, cleared by the boards of directors of both the companies, is expected to close by the end of calendar year 2013. On completion of the deal, Perrigo’s revenue stream would be boosted as it will receive significant royalties on multiple sclerosis drug Tysabri from Biogen Idec Inc. (BIIB - Free Report) .

Management expects Elan’s acquisition, on closure, to boost the standalone Perrigo’s fiscal 2014 adjusted earnings by at least 10 cents per share. Fiscal 2015 adjusted earnings are expected to be boosted by 70-80 cents per share, including synergies.

Perrigo currently carries a Zacks Rank #3 (Hold). Right now, Gilead Sciences Inc. (GILD - Free Report) looks attractive, with a Zacks Rank #1 (Strong Buy).

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