Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  Equities  >  Nyse  >  Perrigo Company plc    PRGO   IE00BGH1M568

PERRIGO COMPANY PLC

(PRGO)
  Report  
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
News SummaryMost relevantAll newsPress ReleasesOfficial PublicationsSector newsAnalyst Recommendations

PERRIGO : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

share with twitter share with LinkedIn share with facebook
share via e-mail
0
08/08/2019 | 11:53am EDT

EXECUTIVE OVERVIEW

This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements included in this Form 10-Q and our Form 10-K for the year ended December 31, 2018 (the "2018 Form 10-K"). These historical financial statements may not be indicative of our future performance. This discussion contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks referred to under "Risk Factors" in Item 1A of our 2018 Form 10-K and Part II. Item 1A of this Form 10-Q.

Perrigo Company plc was incorporated under the laws of Ireland on June 28, 2013 and became the successor registrant of Perrigo Company, a Michigan corporation, on December 18, 2013 in connection with the acquisition of Elan Corporation, plc ("Elan"). Unless the context requires otherwise, the terms "Perrigo," the "Company," "we," "our," "us," and similar pronouns used herein refer to Perrigo Company plc, its subsidiaries, and all predecessors of Perrigo Company plc and its subsidiaries.

We are dedicated to making lives better by bringing "Quality, Affordable Self-Care Products™" that consumers trust everywhere they are sold. We are a leading provider of over-the-counter ("OTC") health and wellness solutions that enhance individual well-being by empowering consumers to proactively prevent or treat conditions that can be self-managed. We are also a leading producer of generic prescription pharmaceutical topical products such as creams, lotions, gels, and nasal sprays.

Segment Reporting Change

During the three months ended March 30, 2019, we changed the composition of our operating and reporting segments. We moved our Israeli diagnostic business from the Consumer Self-Care International segment to the Prescription Pharmaceuticals segment and we made certain adjustments to our allocations between


                                       37

--------------------------------------------------------------------------------

                                                    Perrigo Company plc - Item 2
                                                              Executive Overview


segments. These changes were made to reflect changes in the way in which management makes operating decisions, allocates resources, and manages the growth and profitability of the Company. Financial information related to our business segments and geographic locations can be found in Item 1. Note 2 and Note 17 . For results by segment, see "Segment Results" below.

Our new reporting and operating segments are as follows:

•      Consumer Self-Care Americas ("CSCA"), formerly Consumer HealthcareAmericas, comprises our consumer self-care business (OTC, contract
       manufacturing, infant formula and animal health categories) in the U.S.,
       Mexico and Canada.


•      Consumer Self-Care International ("CSCI"), formerly Consumer Healthcare
       International, comprises our branded consumer self-care business primarily
       in Europe, our consumer-focused business in the United Kingdom and
       Australia, and our liquid licensed products business in the United
       Kingdom.


•      Prescription Pharmaceuticals ("RX") comprises our Prescription
       Pharmaceuticals business in the U.S. and our diagnostic business in
       Israel, which was previously in our CSCI segment.


Highlights

•      On August 9, 2018, we announced a plan to separate our RX business, which,
       when completed, will enable us to focus on expanding our consumer-facing
       businesses. We have made significant progress related to the preparations
       for separation, which may include a possible sale, spin-off, merger or
       other form of separation. While we remain committed to transforming to a
       consumer-focused business, we cannot commit to a specific date for the
       separation. In connection with the proposed separation, we anticipate
       incurring significant preparation costs, excluding restructuring expenses
       and transaction costs, in the range of $45.0 million to $80.0 million
       depending on the final structure of the transaction.



•      On July 1, 2019, we acquired 100% of the outstanding equity interest in
       Ranir Global Holdings, LLC ("Ranir"), a privately-held company, for total
       base consideration of $750.0 million in a debt-free, cash-free
       transaction, subject to post-closing adjustments for changes to working
       capital compared to the target working capital on the closing date. This
       transaction advances our transformation to a consumer-focused, self-care
       company while enhancing our position as a global leader in consumer
       self-care solutions (refer to   Item 1. Note 18  ).



RESULTS OF OPERATIONS

CONSOLIDATED

Recent Developments

Notice of Proposed Adjustment

On April 26, 2019, we received a revised Notice of Proposed Adjustment ("NOPA") from the IRS regarding transfer pricing positions related to the IRS audit of Athena for the years ended December 31, 2011, 2012 and 2013. The NOPA carries forward the theory from a 2017 draft NOPA that when Elan took over the future funding of Athena's in-process Research & Development ("R&D") in 1996, after it acquired Athena in 1996, it should have paid a substantially higher royalty rate for the right to exploit Athena's intellectual property, rather than rates based on transfer pricing documentation prepared by Elan's external tax advisors. The NOPA proposes a payment of $843.0 million, which represents additional tax and a 40.0% penalty. This amount excludes consideration of offsetting tax attributes and potentially material interest. We strongly disagree with the IRS income position and will pursue all available administrative and judicial remedies, including potentially those available under the U.S. - Ireland Income Tax Treaty to alleviate double taxation. No payment of the additional amounts is required until the matter is resolved administratively, judicially, or through treaty negotiation. While we believe our position to be correct, there can be no assurance of an ultimate favorable outcome, and if the matter is resolved unfavorably it could have a material adverse impact on our liquidity and capital resources (refer to Item 1. Note 14 ).



                                       38

--------------------------------------------------------------------------------

                                                    Perrigo Company plc - Item 2
                                                                    Consolidated


Consolidated Results

Three Month Comparison
                      Three Months Ended
                    June 29,      June 30,
(in millions)         2019          2018
Net sales          $ 1,149.0$ 1,186.4
Gross profit       $   430.8$   471.0
Gross profit %          37.5 %        39.7 %
Operating income   $    55.0$    94.7
Operating income %       4.8 %         8.0 %


                [[Image Removed: chart-0fa0f6a9de255032a83.jpg]]

                [[Image Removed: chart-522571a1460d5746bcd.jpg]]

* Total net sales by geography is derived from the location of the entity that sells to a third party.

Operating income decreased $39.7 million, or 42%, over the prior year period due to:

$37.4 million, or 3%, decrease in net sales over the prior year period due to:

$51.9 million decrease in sales of existing products due primarily
             to pricing pressure and decreased sales volumes of certain products;

$26.6 million decrease due to discontinued products; and

$23.8 million decrease due primarily to unfavorable European Euro
             foreign currency translation; partially offset by

$64.9 million increase due to new product sales.

$40.2 million decrease in gross profit, or a 220 basis point decrease in
       gross profit as a percentage of net sales, due primarily to the net sales
       decreases discussed above.


$0.5 million decrease in operating expenses due primarily to:

$50.0 million decrease in R&D expense due to the absence of an
             upfront license fee payment to enter into a license agreement with
             Merck Sharp & Dohme Corp ("Merck") in the prior year period;


•            $15.3 million decrease in selling expenses due primarily to the
             effect of European Euro favorable foreign currency translation;
             partially offset by


•            $30.4 million increase in administrative expenses due primarily to
             increased legal and consulting fees;

$27.8 million impairment charge related to a definite-lived intangible asset;

$8.4 million increase in restructuring expense due primarily to the
             reorganization of our sales force in France.





                                       39

--------------------------------------------------------------------------------

                                                    Perrigo Company plc - Item 2
                                                                    Consolidated


Six Month Comparison
                       Six Months Ended
                    June 29,      June 30,
(in millions)         2019          2018
Net sales          $ 2,323.5$ 2,403.4
Gross profit       $   879.6$   963.7
Gross profit %          37.9 %        40.1 %
Operating income   $   157.3$   250.9
Operating income %       6.8 %        10.4 %


                [[Image Removed: chart-c90c172fcc936735528.jpg]]


                [[Image Removed: chart-66a87cd0c497080ab15.jpg]]

* Total net sales by geography is derived from the location of the entity that sells to a third party.

Operating income decreased $93.6 million, or 37%, over the prior year period due to:

$79.9 million, or 3%, decrease in net sales over the prior year period due to:

$90.3 million decrease in sales of existing products due primarily
             to pricing pressure;


•            $59.6 million decrease due primarily to unfavorable European Euro
             foreign currency translation; and

$49.7 million decrease due to discontinued products; partially offset by

$119.7 million increase due to new product sales.

$84.1 million decrease in gross profit, or a 220 basis point decrease in
       gross profit as a percentage of net sales, due primarily to the decrease
       in net sales discussed above, increased commodity costs related to certain
       products and operating inefficiencies in the CSCA segment.


$9.5 million increase in operating expenses due primarily to:

$47.8 million increase in administrative expenses due primarily to
             increased legal and consulting fees;


•            $31.9 million of impairment charges related to a definite-lived
             intangible asset and an in-process R&D asset; and


•            $16.3 million increase in restructuring expense due primarily to the
             reorganization of our sales force in France; partially offset by


•            $50.0 million decrease in R&D expense due to the absence of an
             upfront license fee payment to enter into a license agreement with
             Merck in the prior year period;


•            $27.8 million decrease in selling expenses due primarily to the
             effect of European Euro favorable foreign currency translation; and


•            $9.4 million decrease in acquisition and integration-related charges
             and contingent consideration adjustments.



                                       40

--------------------------------------------------------------------------------

                                                    Perrigo Company plc - Item 2
                                                                    Consolidated



CONSUMER SELF-CARE AMERICAS

Recent Developments
•      On July 8, 2019, we completed the sale of our animal health business to
       PetIQ for base consideration of$185.0 million, which we estimate will
       result in a pre-tax gain of $80.0 million to $90.0 million. The final
       purchase price and gain is subject to customary post-closing adjustments
       for changes to working capital compared to the target working capital on
       the closing date and is expected to be finalized by the fourth quarter of
       2019 (refer to   Item 1. Note 18  ).



•      On July 1, 2019, we acquired 100% of the outstanding equity interest in
       Ranir, a privately-held company, for total base consideration of $750.0
       million in a debt-free, cash-free transaction, subject to post-closing
       adjustments for changes to working capital compared to the target working
       capital on the closing date. This transaction advances our transformation
       to a consumer-focused, self-care company while enhancing our position as a
       global leader in consumer self-care solutions (refer to   Item 1. Note
       18  ).



•      On April 1, 2019, we purchased product Abbreviated New Drug Application
       ("ANDA"s) and other records and registrations of Budesonide Nasal Spray, a
       generic equivalent of Rhinocort Allergy® and Triamcinolone Nasal Spray, a
       generic equivalent of Nasacort Allergy®, from Barr Laboratories, Inc., a
       subsidiary of Teva Pharmaceuticals, for $14.0 million in cash (refer to
         Item 1. Note 3  ).



Segment Results

Three Month Comparison

                      Three Months Ended
                     June 29,      June 30,
(in millions)          2019          2018
Net sales          $   582.1$  596.9
Gross profit       $   196.8$  202.5
Gross profit %          33.8 %        33.9 %
Operating income   $   107.8$   64.6
Operating income %      18.5 %        10.8 %


Three Months Ended June 29, 2019 vs. Three Months Ended June 30, 2018


Operating income increased $43.2 million, or 67%, over the prior year period due
to:

•      $14.8 million, or 3%, decrease in net sales over the prior year period due
       primarily to:

$11.8 million decrease in sales of existing products due primarily to:

? Pricing pressure across all categories; and


?                  Lower sales volume in our infant nutritionals and animal
                   health categories; partially offset by


?                  Higher sales volume in our cough/cold/allergy/sinus,
                   gastrointestinal, and smoking cessation categories; and

$11.2 million decrease due to discontinued products; partially offset by

$8.0 million increase due primarily to the launches of various new
             antacids and smoking cessation products.



•      $5.7 million decrease in gross profit due primarily to the net sales
       decrease discussed above and certain operational inefficiencies.



•      $48.9 million decrease in operating expenses due primarily to the absence
       of a $50.0 million upfront license fee payment to enter into a license
       agreement with Merck in the prior year period in R&D.





                                       41

--------------------------------------------------------------------------------

                                                    Perrigo Company plc - Item 2
                                                                            CSCA


Six Month Comparison
                       Six Months Ended
                    June 29,      June 30,
(in millions)         2019          2018
Net sales          $ 1,163.9$ 1,198.5
Gross profit       $   380.8$   408.4
Gross profit %          32.7 %        34.1 %
Operating income   $   202.0$   183.2
Operating income %      17.4 %        15.3 %



Six Months Ended June 29, 2019 vs. Six Months Ended June 30, 2018

Operating income increased $18.8 million, or 10%, over the prior year period as a result of:

$34.6 million, or 3%, decrease in net sales over the prior year period due

primarily to:

$27.2 million decrease in sales of existing products due primarily to:

? Pricing pressure across all categories; and


?                  Lower sales volume in our infant nutritionals and animal
                   health categories; partially offset by


?                  Higher sales volume in our cough/cold/allergy/sinus,
                   gastrointestinal, and smoking cessation categories; and

$21.9 million decrease due to discontinued products; partially offset by

$15.0 million increase due primarily to the launches of various new
             antacids, cough/cold/allergy/sinus, and smoking cessation products.



•      $27.6 million decrease in gross profit, or a 140 basis point decrease in
       gross profit as a percentage of net sales, due primarily to the decrease
       in net sales discussed above, and increased commodity costs related to
       certain products in the cough/cold/allergy/sinus categories and operating
       inefficiencies related to infant formula production.



•      $46.4 million decrease in operating expenses due primarily to the absence
       of a $50.0 million upfront license fee payment to enter into a license
       agreement with Merck in R&D in the prior year period.


CONSUMER SELF-CARE INTERNATIONAL

Recent Trends and Developments

•      Management continues to implement its previously disclosed strategy for
       brand prioritization, sales force restructuring, and manufacturing
       insourcing, which is expected to reduce selling costs, improve operating
       margins and focus on higher value OTC products. As part of this strategy,
       we are making progress on the previously reported CSCI restructuring plan
       that we expect to improve our cost structure.



Segment Results

Three Month Comparison

                             Three Months Ended
                            June 29,      June 30,
(in millions)                 2019          2018
Net sales                 $   327.5$  357.9
Gross profit              $   155.4$  173.2
Gross profit %                 47.4  %       48.4 %
Operating income (loss)   $    (2.9 )$    4.0
Operating income (loss) %      (0.9 )%        1.1 %



                                       42

--------------------------------------------------------------------------------

                                                    Perrigo Company plc - Item 2
                                                                            CSCI


Three Months Ended June 29, 2019 vs. Three Months Ended June 30, 2018

Operating income decreased $6.9 million, or 173%, over the prior year period due to:

$30.4 million, or 9%, decrease in net sales over the prior year period due to:

$30.6 million decrease in sales of existing products due primarily to:


?                  Lower net sales in France due to the reorganization of our
                   sales force, which disrupted sales effectiveness and customer
                   outreach; and


?                  Lower net sales in the cough/cold/allergy/sinus and
                   anti-parasites categories; partially offset by

? Higher net sales in the distribution business and in analgesic products ;

$24.0 million decrease due to unfavorable European Euro foreign
             currency translation; and

$6.0 million decrease due to discontinued products; partially offset by

$30.2 million increase due primarily to the launches of XLS Forte 5
             and ACO brands in the lifestyle and personal care and
             derma-therapeutic categories, respectively.



•      $17.8 million decrease in gross profit due primarily to the net sales
       decrease discussed above.


$10.9 million decrease in operating expenses due primarily to:

$18.5 million decrease in selling and administrative expense due to
             the effect of European Euro favorable foreign currency translation;
             partially offset by


•            $8.6 million increase in restructuring expense due primarily to the
             reorganization of our sales force in France.


Six Month Comparison

                      Six Months Ended
                    June 29,     June 30,
(in millions)         2019         2018
Net sales          $  678.3$  735.7
Gross profit       $  323.7$  359.1
Gross profit %         47.7 %       48.8 %
Operating income   $    5.1$   16.3
Operating income %      0.8 %        2.2 %



Six Months Ended June 29, 2019 vs. Six Months Ended June 30, 2018

Operating income decreased $11.2 million, or 69%, over the prior year period as a result of:

$57.4 million, or 8%, decrease in net sales over the prior year period as
       a result of:


•            $57.7 million decrease due to unfavorable European Euro foreign
             currency translation;

$48.0 million decrease in sales of existing products due primarily to:


?                  Lower net sales in the personal care and derma-therapeutics
                   and lifestyle categories; partially offset by

? Higher net sales in the distribution business; and

$8.0 million decrease due to discontinued products; partially offset by

$56.3 million increase due primarily to the launches of XLS Forte 5
             and ACO brands in the lifestyle and personal care and
             derma-therapeutic categories, respectively.



•      $35.4 million decrease in gross profit, due primarily to the net sales
       decrease discussed above.


$24.2 million decrease in operating expenses due primarily to:

$31.6 million decrease in selling and administrative expense due to
             the effect of European Euro favorable foreign currency translation;
             partially offset by


•            $8.7 million increase in restructuring expense due primarily to the
             reorganization of our sales force in France.



                                       43

--------------------------------------------------------------------------------

                                                    Perrigo Company plc - Item 2
                                                                            CSCI



PRESCRIPTION PHARMACEUTICALS

Recent Trends and Developments

•      Although pricing pressure is beginning to moderate, we continue to
       experience a year-over-year reduction in pricing in our RX segment due to
       competitive pressures. Similar to the first quarter of 2019, we
       experienced a year-over-year decrease in pricing pressure in the second
       quarter and expect softness in pricing to continue to impact the segment
       for the foreseeable future.



•      On May 17, 2019, we purchased the ANDA for a generic product used to
       relieve pain from osteoarthritis, for $15.7 million in cash, which we
       capitalized as a developed product technology intangible asset. We plan to
       launch the the product during the third quarter of 2019 (refer to   Item
       1. Note 3  ).



•      During the three months ended June 29, 2019, we identified impairment
       indicators for a certain definite-lived asset related to changes in
       pricing and competition in the market, which lowered the projected cash
       flows we expect to generate from the asset. We determined the asset was
       impaired by $27.8 million. Competition and other industry and market
       factors may contribute to future impairment charges or indications of
       impairment in the segment (refer to   Item 1. Note 4  ).



•      On July 2, 2019, we purchased the ANDA for a generic gel product used for
       the treatment of Hemophilus vaginitis for $49.0 million in cash, which we
       capitalized as a developed product technology intangible asset. We plan to
       launch the product during the third quarter of 2019.



Segment Results

Three Month Comparison

                      Three Months Ended
                     June 29,      June 30,
(in millions)          2019          2018
Net sales          $   239.4$  231.6
Gross profit       $    78.6$   95.3
Gross profit %          32.8 %        41.1 %
Operating income   $    14.7$   53.6
Operating income %       6.1 %        23.1 %


Three Months Ended June 29, 2019 vs. Three Months Ended June 30, 2018


Operating income decreased $38.9 million, or 73%, over the prior year period due
to:

•      $7.8 million, or 3%, increase in net sales over the prior year period due
       primarily to:

$26.7 million increase due to new product sales; partially offset by

$9.4 million decrease in sales of existing products due primarily to
             pricing pressure and decreased sales volumes of certain existing
             products; and

$9.4 million decrease due to discontinued products.

$16.7 million decrease in gross profit, or a 830 basis point decrease in
       gross profit as a percentage of net sales, due primarily to pricing
       pressure and less favorable product mix.



•      $22.2 million increase in operating expenses due primarily to an
       impairment charge related to a definite-lived intangible assets of $27.8
       million; partially offset by the absence of $4.7 million of acquisition
       and integration-related charges and contingent consideration adjustments.







                                       44

--------------------------------------------------------------------------------

                                                    Perrigo Company plc - Item 2
                                                                              RX


Six Month Comparison
                      Six Months Ended
                    June 29,     June 30,
(in millions)         2019         2018
Net sales          $  481.3$  469.2
Gross profit       $  175.1$  196.2
Gross profit %         36.4 %       41.8 %
Operating income   $   75.3$  114.8
Operating income %     15.7 %       24.5 %



Six Months Ended June 29, 2019 vs. Six Months Ended June 30, 2018

Operating income decreased $39.5 million, or 34%, over the prior year period as a result of:

$12.1 million, or 3%, increase in net sales over the prior year period due to:

$48.4 million increase due to new product sales; partially offset by

$19.8 million decrease due to discontinued products;

$15.1 million decrease in sales of existing products due to pricing
             pressure; partially offset by increased sales volumes of certain
             products; and


•            $1.4 million decrease due to unfavorable Israeli Shekel foreign
             currency translation.



•      $21.1 million decrease in gross profit, or 540 basis points decrease of
       gross profit as a percentage of net sales, due primarily to pricing
       pressure and less favorable product mix.



•      $18.4 million increase in operating expenses due primarily to an
       impairment charge related to a definite-lived intangible asset of
       $27.8 million; partially offset by the absence of $8.7 million of
       acquisition and integration-related charges and contingent consideration
       adjustments.



Unallocated Expenses

Unallocated expenses are comprised of certain corporate services not allocated to our reporting segments and are recorded in Operating income on the Condensed Consolidated Statements of Operations. Unallocated expenses were as follows (in millions):

       Three Months Ended                Six Months Ended
     June 29,         June 30,        June 29,        June 30,
       2019             2018            2019            2018
$     64.6$     27.5$    125.1$     63.4

The increase of $37.1 million in unallocated expenses during the three months ended June 29, 2019 compared to the prior year period was due to a $23.5 million increase in legal and consulting fees and a $4.0 million increase in share-based compensation expense driven primarily by the on-boarding of new executives.

The increase of $61.7 million in unallocated expenses during the six months ended June 29, 2019 compared to the prior year period was due to a $45.9 million increase in legal and consulting fees, a $7.4 million increase due to the reorganization of our executive management team, and an increase in share-based compensation expense of $3.2 million driven by the on-boarding of new executives.



                                       45

--------------------------------------------------------------------------------

© Edgar Online, source Glimpses

share with twitter share with LinkedIn share with facebook
share via e-mail
0
Latest news on PERRIGO COMPANY PLC
10/09PERRIGO : Voluntarily Halts Distribution of Ranitidine-Based Product
AQ
09/17PERRIGO : Charitable Foundation Donates More Than $20,000 to Hurricane Dorian Re..
AQ
09/06PERRIGO : Advances Consumer Self-Care Growth Strategy with Acquisition of Prevac..
AQ
09/05PERRIGO : Buys Prevacid U.S. OTC Rights From GlaxoSmithKline
DJ
08/29PERRIGO COMPANY PLC : Ex-dividend day for
FA
08/16PERRIGO : Sc 13d/a
PU
08/16PERRIGO CO PLC : Entry into a Material Definitive Agreement, Termination of a Ma..
AQ
08/08PERRIGO : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT..
AQ
08/08PERRIGO CO PLC : Results of Operations and Financial Condition, Financial Statem..
AQ
08/08PERRIGO : 2Q Earnings Snapshot
AQ
More news