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Earnings Miss at Perrigo

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Perrigo Company’s (PRGO - Free Report) third quarter fiscal 2013 (ended Mar 30, 2013) earnings of $1.42 per share fell short of the Zacks Consensus Estimate by 2 cents. Lower-than-expected revenues led to the earnings miss. The company earned $1.41 per share (including the tax benefit of 20 cents but excluding other special items) in the year-ago quarter.

Net sales in the quarter climbed 18% to $920 million. Revenues were boosted by $40 million due to the inclusion of results of Sergeant's Pet Care Products, Inc (assets acquired by Perrigo in Oct 2012) and Rosemont Pharma (acquired by Perrigo in Feb 2013). Newly launched products aided revenues by $41 million. Revenues missed the Zacks Consensus Estimate of $932 million.

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 $537 million in the quarter, up 20% from the prior year. Net sales growth was driven by improved sales of existing products primarily in the cough/cold, contract and analgesics units, along with strong new product sales, mainly in the gastrointestinal, cough/cold and smoking cessation units.

Sales in the segment were also aided by results from Sergeant's Pet Care Products. Adjusted gross profit for the segment climbed 27.3% to $180.1 million.

Nutritional: Perrigo reported revenue of $133.3 million, up 13.3% year over year. All the sub-groups of the segment witnessed growth during the reported quarter. Adjusted gross profit for the segment improved 2% to $34 million in the third quarter of fiscal 2013.

Rx Pharmaceuticals: The Rx Pharmaceuticals segment performed encouragingly during the quarter with net sales improving 21.7% to $189.4 million. Sales of new products boosted segmental revenues by $18 million. Inclusion of results of Rosemont Pharma boosted sales by $8 million. Adjusted gross profit for the segment increased 19.3% to $109.7 million.

Active Pharmaceutical Ingredients: The company reported API sales of $41.1 million, up 11.3% from the prior-year quarter. Results were aided by increased sales of existing products.

Fiscal 2013 View Backed

Perrigo continues to expect adjusted earnings per share for fiscal 2013 in the range of $5.53 – $5.73 per share, up 11%-15% year over year. The Zacks Consensus Estimate for fiscal 2013 currently stands at $5.64 per share, well within the company’s guidance range.

Our Take

Perrigo has lately been quite active on the acquisition front. On Apr 1, 2013, Perrigo announced the completion of the acquisition of companion animal health company, Velcera, Inc.

The deal, which has strengthened Perrigo’s position in the over-the-counter (OTC) retail pet healthcare market, is encouraging. In Feb 2013, Perrigo acquired UK-based privately held pharmaceutical company, Rosemont Pharmaceuticals Ltd. By acquiring Rosemont Pharma, Perrigo has strengthened its position in the UK oral liquid formulations space. We are impressed by Perrigo’s growth-by-acquisition strategy.

In Mar 2013, Perrigo commenced the shipping of its generic version of Adams Respiratory Therapeutics’ expectorant Mucinex (600 mg extended-release tablets). Adams Respiratory Therapeutics is a subsidiary of Reckitt Benckiser Group.

The launch of the store brand version of Mucinex further strengthens its dominant position in the store brand OTC drug market. We note that Perrigo competes with players like Dr. Reddy‘s Laboratories, Ltd. (RDY - Free Report) and Actavis Inc. (ACT - Free Report) in the store brand space.

Perrigo carries a Zacks Rank #3 (Hold) in the short-run. Athersys, Inc. (ATHX - Free Report) appears to be more attractive with a Zacks Rank #1 (Strong Buy).

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