Perrigo Company plc (PRGO - Free Report) reported second-quarter 2018 adjusted earnings of $1.22 per share, which beat the Zacks Consensus Estimate of $1.21. Earnings growth was flat year over year.
Net sales in the reported quarter decreased 4.2% year over year to $1.19 billion, missing the Zacks Consensus Estimate of $1.23 billion. The decline was mainly due to loss of sales from discontinued products.
Perrigo’s shares were down 7.1% in pre-market trading on Thursday presumably as the company lowered its revenue guidance for 2018. The company’s shares have declined 10.1% against the industry’s rally of 11%.
Effective Jan 1, 2017, the company’s reporting segments are: Consumer Health Care Americas (“CHCA”), Consumer Healthcare International (“CHCI”), Prescription Pharmaceuticals (“RX”) and Other Segment.
CHCA: CHCA net sales in the second quarter of 2018 came in at $597 million, down 1.3% year over year. This downside can be attributed to lower net sales in the animal health business and smoking cessation category. However, strong performance of infant nutrition and cough cold categories partially offset the decline in CHCA net sales. While new product sales of $15 million contributed to the top line, the company lost sales of $4 million from discontinued products.
CHCI: CHCI segment reported net sales of $381 million, up 1.2% from the year-ago period. However, sales declined 4.1% excluding the favorable currency movement. Excluding the exited Russian and unprofitable distribution businesses in 2017, and favorable foreign currency movements of $20 million, net revenues fell 2.2% due to lower sales of anti-parasite, lifestyle and analgesics categories in addition to lost sales from discontinued products of $8 million.
However, this was partially offset by new product sales of $20 million and higher net sales in the diagnostics business.
RX: This segment’s net sales declined 13.2% to $209 million on a reported basis as well as on a constant-currency basis. New product sales of $8 million were more than offset by lower net revenues of existing products primarily due to price erosion. Lost sales due to discontinued products were $5 million. The company also had a shortfall in new product launches during the quarter.
2018 Earnings Outlook
Perrigo lowered its full-year revenue guidance and now expects it to be in the range of $4.8-$4.9 billion in 2018 compared with the previous expectation of $5.0-$5.1 billion. This includes the impact of reduced RX segment sales outlook and unfavorable foreign currency movement expectation of $65 million
The company also reduced its adjusted earnings guidance to the band of $4.75 to $4.95 per share from the previously announced $5.05 to $5.45 per share.
Separating RX Segment
In a separate release, Perrigo announced the approval from its board of directors for separation of the RX segment to unlock shareholder value. The company anticipates that divesting the RX segment will allow the segment to better capitalize its differentiated generic pharmaceutical products and help Perrigo to focus on expanding its leading consumer business.
In a separate press release, the company announced a new growth strategy for its CHCA segment. The company is looking for non-prescription, over-the-counter (“OTC”) regulatory approvals for prescription drugs. The OTC availability of prescription drugs is likely boost sales of the drugs, driving the company’s topline. In August, the company signed its first such agreement with Merck (MRK - Free Report) to gain exclusive rights to pursue regulatory approval of OTC Nasonex nasal spray.
Zacks Rank & Stocks to Consider
Perrigo currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the biotech sector are Vertex Pharmaceuticals (VRTX - Free Report) and Seattle Genetics (SGEN - Free Report) . Both the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Vertex’s earnings per share estimates moved up from $3.16 to $3.74 for 2018 and from $4.33 to $4.59 for 2019 in the last 30 days. The company delivered a positive surprise in all the trailing four quarters with an average beat of 27.5%. Share price of the company has increased 16.9% in a year.
Seattle Genetics’ 2018 loss per share estimates narrowed from $1.81 to 83 cents and from 81 cents to 39 cents in the last 30 days. The company delivered a positive earnings surprise in three of the trailing four quarters, with an average beat of 12.93%. The company’s shares have rallied 34.8% year to date.
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