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Why Is Perrigo (PRGO) Down 17.4% Since Last Earnings Report?

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A month has gone by since the last earnings report for Perrigo (PRGO - Free Report) . Shares have lost about 17.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Perrigo due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Perrigo Beats on Q1 Earnings and Sales

Perrigo reported first-quarter 2019 adjusted earnings of $1.07 per share, which beat the Zacks Consensus Estimate of 94 cents. However, earnings decreased 15.2% year over year.

Net sales declined 3.5% year over year to $1.18 billion but outpaced the Zacks Consensus Estimate of $1.15 billion. The year-over-year decline was mainly due to poor performance of the Consumer Health segment globally. Sales of $55 million from new products were partially offset by loss of $23 million in sales from discontinued products. Currency movement had an unfavorable impact of $36 million. Sales declined 0.6% excluding impact of foreign currency movement.

Segment Discussion

Perrigo updated its reporting segments as part of its self-care strategy. The updated segments are Consumer Self Care Americas (“CSCA”), Consumer Self Care International (“CSCI”) and Prescription Pharmaceuticals (“RX”). During the quarter, the company initiated a process to transform itself from a healthcare to a consumer self-care company.

CSCA:  Net sales of the segment in the first quarter of 2019 came in at $582 million, down 3.3% year over year. Weak performance of cough and cold and analgesics categories, loss of sales due to exited infant foods product line and loss of partnered product in animal health business were partially offset by higher sales in gastrointestinal category, especially omeprazole, stored brand OTC equivalent of Procter & Gamble’s Prilosec OTC. Similar performance of Johnson & Johnson’s multi-symptom relief drug, Imodium, and Merck’s allergy drug, Nasonex nasal spray will likely boost the top line going forward.

Excluding net sales from the animal health and exited infant foods products and the effect of unfavorable currency movements, net sales at CSCA declined 1.5%.

The company decided to exit the infant foods product line in 2018. The product line added $5 million to net sales in the first quarter. However, the product line is not expected to generate revenues anymore for the CSCA segment.

New product sales of $7 million were completely offset by lost sales from discontinued products of $11 million.

Concurrent with the earnings release, the company announced that it has agreed to divest its animal health segment for $185 million in cash to pet medication and wellness company, PetIQ.

CSCI: The segment reported net sales of $351 million, down 7.1% from the year-ago period. However, on a constant-currency basis, the metric increased 1.7%. Net sales of dermatological category and new product sales of $26 million, mainly driven by the launch of the weight loss product XLS Forte 5, were partially offset by lower sales in lifestyle and personal care categories. The company lost sales of $2 million from discontinued products.

The CSCI segment grew organically during the quarter. It was able to maintain its market share in international markets. With the launch of new products, CSCI segment is expected to remain on growth trend. However, currency movement may have unfavorable impact on the top line.

Rx Segment: Net sales of the segment increased 1.8% to $242 million on a reported basis and 2.4% on a constant-currency basis. The upside can be attributed to new product sales of $22 million and continued moderation of pricing pressure, partially offset by decelerating pricing pressure in core products. The company lost $10 million in sales from discontinued products.

Meanwhile, the Rx segment continues to face intense competition from other generic drug producers and brand-name pharmaceutical companies, which are launching their own generic version of their branded products.

2019 Guidance

Perrigo provided guidance for earnings and sales in 2019. The company expects adjusted EPS to be in the range of $3.65 – $3.95. The company also anticipates a favorable impact of 10 cents to 35 cents to adjusted EPS upon including sales of Ranir’s products, launch of generic ProAir and benefits of cost saving initiative, Project Momentum.

The company expects total net sales for 2019 to be between $4.6 billion and $4.7 billion. Worldwide sales from the consumer segment are expected to be in the range of $3.6 billion to $3.7 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -11.36% due to these changes.

VGM Scores

Currently, Perrigo has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Perrigo has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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