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, 2021 (the
"2021 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 2021 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.
Our vision is to make 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 are
designed to enhance individual well-being.
Our core competencies are geared to fully take advantage of the massive global
trend towards self-care. We define self-care as not just treating disease or
helping individuals feel better after taking a product, but also maintaining and
enhancing their overall health and wellness. Consistent with our vision, in 2019
Perrigo's management and board of directors launched a three-year strategy to
transform the Company into a consumer self-care leader. We completed our
transformation to a consumer self-care company in 2021 by reconfiguring the
portfolio through the divestiture of our RX business, announcement of the
acquisition of HRA Pharma that closed in the second quarter of 2022, and removal
of significant uncertainty through settlement of a tax exposure. In addition, we
continue to invest in growth initiatives to drive future consistent and
sustainable results in line with consumer-packaged goods peers.
Our Segments
Our reporting and operating segments are as follows:
•Consumer Self-Care Americas ("CSCA") comprises our consumer self-care business
(OTC, infant formula, and oral care categories, and contract manufacturing) in
the U.S. and Canada, and until it was disposed on March 9, 2022, previously
included our Latin America businesses.
•Consumer Self-Care International ("CSCI") comprises our consumer self-care
business in Europe and Australia, which are primarily branded, and our store
brand business in the United Kingdom and parts of Europe and Asia.
Our segments reflect the way our 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 1 7 . For results by segment, see
"Segment Results" below.
Highlights and Recent Developments
•On March 9, 2022, we completed the sale of our Latin America businesses to
Advent International (refer to Item 1. Note 3 ). This transaction is part of
Perrigo's margin improvement program and Project Momentum cost savings
initiative.
45
--------------------------------------------------------------------------------
Perrigo Company plc - Item 2
Executive Overview
•On March 17, 2022, we announced that we received final approval from the U.S.
Food and Drug Administration for the over-the-counter use of Nasonex® 24HR
Allergy (mometasone furoate monohydrate 50mcg). This approval marks the first
branded Rx-to-OTC switch for Perrigo and paves the way for Nasonex® to enter the
OTC marketplace. We expect to begin offering Nasonex® 24HR Allergy later this
year (refer to Item 1. Note 4 ).
•On March 22, 2022, Ray Silcock informed us of his intent to retire as Chief
Financial Officer and principal accounting officer of the Company, to be
effective July 15, 2022. We have initiated a comprehensive search to identify a
successor for this position.
Additionally, subsequent to April 2, 2022,
•On April 20, 2022, pursuant to a new credit agreement, we entered into new
senior secured credit facilities consisting of (i) a $1.0 billion five-year
revolving credit facility (the "New Revolving Facility") and (ii) a $500 million
five-year term loan A facility and a $1.1 billion seven-year term loan B
facility (the "New Term Loan Facilities" and, together with the New Revolving
Facility, the "New Senior Secured Credit Facilities") through our indirect
wholly-owned subsidiary, Perrigo Investments, LLC. We used a portion of the
proceeds from the New Term Loan Facilities, together with cash on hand, to
finance the previously announced acquisition of HRA Pharma and to repay our
outstanding term loan facility. We expect to redeem our 4.00% Senior Notes due
2023 and Perrigo Holding N.V.'s outstanding 5.1045% Guaranteed Senior Notes due
2023 on May 20, 2022, using a portion of the proceeds from the New Term Loan
Facilities (refer to Item 1. Note 1 8 ).
•On April 29, 2022, we completed the previously announced acquisition of HRA
Pharma for €1.8 billion, or approximately $1.9 billion based on exchange rates
at the time of closing on an enterprise value basis and using a lockbox
mechanism set forth in the Purchase Agreement (refer to Item 1. Note 18 ).
HRA Pharma is one of the fastest growing OTC companies globally, with three
category-leading self-care brands in blister care (Compeed®), women's health
(ellaOne®) and scar care (Mederma®), and brings expertise in prescription-to-OTC
switches. This acquisition strengthens our presence in Europe, improves our
financial profile and margins, and completed our transformation to a consumer
self-care company. Operating results are expected to be reported within both our
CSCA and CSCI segments.
•In April, 2022, we entered into several financing hedge activities associated
with the acquisition of HRA Pharma and New Senior Secured Credit Facilities:
•We purchased $2.0 billion of total notional undesignated options to
economically hedge the purchase price for HRA Pharma. All premiums associated
with the HRA Pharma related currency options were settled in April 2022 for
$37.0 million, and we will recognize $12.5 million of loss in Other (income)
expense during the three months ending July 2, 2022
•We entered into five variable-to-fixed interest rate swap agreements to fix the
interest rate on a substantial portion of the New Term Loan A Facility and New
Term Loan B Facility. As designated cash flow hedges, the derivatives will be
recorded at fair value with gains and losses recorded in other comprehensive
income and recognized in interest expense as interest is paid on the Term Loan A
and B Facilities.
•To reduce the Euro exposure of our net investment in European operations, we
entered into three fixed-for-fixed cross-currency interest rate swaps designated
as net investment hedges using the spot-to-spot method. Over the term, we
receive Euro interest payments and make USD interest payment followed by an
exchange of notional currencies at the expiration of the contract. As a
designated net investment hedge, gains and losses related to the Euro spot
exchange rate will be deferred in cumulative translation adjustment and
recognized in the income statement when the hedged Euro net investment is
substantially liquidated. Gains and losses on excluded components (e.g. interest
differentials) will be recorded in the income statement on a systematic and
rational basis.
Refer to Item 1. Note 18 for further details.
46
--------------------------------------------------------------------------------
Perrigo Company plc - Item 2
Executive Overview
War in Ukraine
The Russian invasion of Ukraine and resulting economic and political sanctions
imposed by the United States, United Kingdom, European Union, and other
countries on Russia, Belarus, and occupied regions in Ukraine have negatively
impacted our results from operations in the region. We currently have 97
employees working out of our Ukraine subsidiary. We have no subsidiary or
employees in Russia. We have no manufacturing facilities in either Russia or
Ukraine and we sell products into Russia entirely through distributors. For the
year ended December 31, 2021, these countries included approximately $27 million
of net sales, $15 million of gross profit, and $8 million of operating income.
In March 2022, we halted all sales to distributors in Russia and sales in
Ukraine were severely depressed. While there is a possibility that sales levels
may rebound in Ukraine, they are not likely to materialize in the short-term.
More broadly, there could be additional impacts to our net sales, earnings and
cash flows should the situation escalate beyond its current scope, including,
among other potential impacts, lower economic growth or recessions in certain
neighboring countries, or globally, due to increases in global commodity costs
and inflationary impacts and the limited availability of energy, and other
supply chain items we procure. Additionally, our suppliers, distributors and
retailers may be impacted by the war and related sanctions, and any such
challenges could in turn impact our operations or negatively impact the sales,
cost, or availability of our products. We will continue to monitor any impact
that the war in Ukraine and existing and proposed sanctions may have on our
business operations, as well as the impact that such events may have on economic
and political conditions in the region and on our industry generally. If the
conflict spreads or materially escalates, or economic conditions deteriorate,
the impact on our business and results of operations could be material.
Impact of COVID-19 Pandemic
As the COVID-19 global pandemic and the emergence of new variants continues to
evolve, the spread of the disease and actions to slow it have impacted, and
continue to impact, our business and the global self-care markets in which we
compete. This evolution may result in economic recessions or a slowdown of
economic growth in certain countries or globally, which may result in increased
or reduced demand for our products. It could also lead to volatility in consumer
preferences and access to our products (due to government actions or key
material, transportation and labor shortages impacting our ability to produce
and ship products), or impact consumers' movements and access to our products.
Currently, most of the markets in which we operate have relaxed COVID-19 related
restrictions and have returned to in-person activities, leading to higher
incidences of factors that may impact sales of our products, including cough,
cold and flu-like illnesses, sun burn care, and head lice as children return to
school. For instance, we experienced higher demand in the first quarter of 2022
for our cough/cold sales relative to the first quarter of 2021 when there was
very low incidence of cough, cold and flu-like illness, which we attribute to
COVID-19 social distancing and mask requirements.
We continue to closely monitor and adjust COVID-19 safety protocols for
employees in response to the changing incidence rate, rules and guidelines set
to minimize the effects COVID-19 in each jurisdiction. While most of our
facilities have maintained production at high levels despite the challenges
posed by the impact of the COVID-19 pandemic, our global operations have been
negatively impacted by the worldwide supply chain challenges. This has resulted
in increased costs of materials, labor, logistics and distribution networks. We
have taken steps to substantially mitigate these and other inflationary cost
pressures, including pricing actions, productivity improvements and reducing
discretionary costs.
While the current trend of increased consumer takeaway suggests that the
volatility in consumer behavior during the pandemic is stabilizing, the
emergence and spread of new disease variants or additional outbreaks in markets
in which we operate could result in new or reimposed restrictions or cause these
trends to change, slow or reverse. Moving forward, it remains uncertain if the
consumer and customer behavior surrounding COVID-19 that has impacted net sales
will continue to normalize, or change, and how the increase in operating costs
and supply chain disruptions will evolve going forward. Any change in these
trends will likely depend on the duration and severity of the COVID-19 pandemic,
including the emergence of new strains of the virus that are more contagious or
harmful, each individual country's evolving response to the pandemic, as well as
the availability, acceptance and efficacy of the COVID-19 vaccines and
therapeutics. The magnitude of any such adverse impact cannot currently be
determined due to a number of uncertainties surrounding COVID-19.
47
--------------------------------------------------------------------------------
Perrigo Company plc - Item 2
Executive Overview
Internal Revenue Service Audits of Perrigo Company, a U.S. Subsidiary
As described in more detail in Item 1. Note 15 , Perrigo Company, our U.S.
subsidiary ("Perrigo U.S."), is engaged in a series of tax disputes in the
United States relating primarily to transfer pricing adjustments including
income in connection with the purchase, distribution, and sale of store-brand
OTC pharmaceutical products in the United States, including the generic
heartburn medication omeprazole. The trial of the refund case relating to the
dispute of the amount of taxable income on omeprazole sales was held during the
period May 25, 2021 to June 7, 2021 in the United States District Court for the
Western District of Michigan. Post-trial briefings were completed on September
24, 2021 and the case is now fully submitted for the court's decision.
On May 7, 2020, we received a final Notice of Proposed Adjustment ("NOPA") from
the IRS regarding the deductibility of interest related to the IRS audit of
Perrigo U.S. for the years ended June 28, 2014 and June 27, 2015. The NOPA
capped the interest rate on certain intercompany debt for U.S. federal tax
purposes at 130.0% of the Applicable Federal Rate (a blended rate reduction of
approximately 4.0% per annum) on the stated ground that the loans were not
negotiated on an arms-length basis. On May 3, 2021, the IRS notified us that it
would no longer pursue the 130.0% of AFR position as indicated in the NOPA due
to a change in IRS policy. On January 20, 2022, the IRS responded to our
protest, which we filed on February 26, 2021, with its rebuttal, and revised its
position on this interest rate issue by reasserting that implicit parental
support considerations are necessary to determine the arm's length interest rate
and proposing revised interest rates that are higher than the interest rates
proposed under its 130.0% of AFR assertion. The blended interest rate proposed
by the IRS rebuttal is 4.36%, an increase from the blended interest rate in the
NOPA of 2.57%, but lower than the stated blended interest rate of the loans of
6.8%. We will pursue all available administrative and judicial remedies
necessary to defend the deductibility of the interest expense on this
indebtedness.
In addition, the 30-day letter and Revenue Agent's Report for the 2013-2015 tax
years expanded on a NOPA issued on December 11, 2019 and proposed to disallow
reductions to gross sales income on the sale of prescription products to
wholesalers for accrued wholesale customer pipeline chargebacks where the
prescription products were not re-sold by such wholesalers to covered retailers
by the end of the tax year. The NOPA asserted that the reduction of gross sales
income of such chargebacks is an impermissible method of accounting and proposed
a change in accounting method that would defer the reduction in gross sales
income until the year the prescription products were re-sold to covered
retailers. The NOPA proposed an increase in sales revenue of approximately $99.5
million for the 2013-2015 tax years. We filed a protest on February 26, 2021 to
request IRS Appeals consideration. On January 20, 2022, the IRS responded to our
protest with its rebuttal and reiterated the NOPA's position that the accrued
chargebacks are not currently deductible in the tax year accrued because all
events have not occurred to establish the fact of the liability in the year
deducted. If the IRS were to prevail in its proposed adjustments, we estimate a
payment of approximately $18.0 million, excluding interest and penalties for the
2013-2015 tax years. In addition, we expect the IRS to seek similar adjustments
for future years. If those future adjustments were to be sustained, based on
preliminary calculations and subject to further analysis, we estimate this would
result in a payment not to exceed $7.0 million through tax year ended December
31, 2021, excluding interest and penalties. We strongly disagree with the IRS's
proposed adjustment and will pursue all available administrative and judicial
remedies necessary.
On December 2, 2021, the IRS commenced an audit of our federal income tax
returns for the tax years ended December 31, 2015, through December 31, 2019.
48
--------------------------------------------------------------------------------
Perrigo Company plc - Item 2
Consolidated
Internal Revenue Service Audit of Athena Neurosciences, LLC, a U.S. Subsidiary
As described in more detail in Item 1. Note 15 , on April 26, 2019, we
received a revised NOPA from the IRS regarding transfer pricing positions
related to the IRS audit of Athena for the years ended December 31, 2011,
December 31, 2012 and December 31, 2013. The dispute involves the royalties
payable to Athena and reportable by Athena as U.S. royalty income for its
contribution of its early-stage intellectual property in several in-process
products, including the Multiple Sclerosis drug Tysabri for further development
by non-U.S. entities. To avoid double taxation of Tysabri income in the U.S. and
Ireland, Athena made requests for Competent Authority Assistance with the IRS
and Irish Revenue on April 21 and 23, 2020 pursuant to the Mutual Agreement
Procedure in the U.S.-Ireland Income Tax Treaty, which were accepted by the IRS
and Irish Revenue. Supplemental requests for Competent Authority assistance to
resolve a dispute with the IRS over the deductibility for U.S. tax purposes of a
litigation settlement payment made in 2011 for the drug Zonegran were also
accepted. An opening conference with the IRS was held on May 6, 2021 with a
follow-up conference held on December 3, 2021. An opening conference with Irish
Revenue was held on July 23, 2021. Athena has responded to multiple requests for
information from both Competent Authorities. The respective Competent
Authorities will attempt to reach a resolution that avoids double taxation on
both issues.
RESULTS OF OPERATIONS
Currency Translation
Currency translation effects described below represent estimates of the net
differences between translation of foreign currency transactions into U.S.
dollars for the three months ended April 2, 2022 at the average exchange rates
for the reporting period and average exchange rates for the three months ended
April 3, 2021.
CONSOLIDATED
Consolidated Financial Results
Three Month Comparison
Three Months Ended
April 2, April 3,
(in millions, except percentages) 2022 2021
Net sales $ 1,074.5 $ 1,010.0
Gross profit $ 337.8 $ 368.4
Gross profit % 31.4 % 36.5 %
Operating income $ 21.7 $ 51.4
Operating income % 2.0 % 5.1 %
49
--------------------------------------------------------------------------------
Perrigo Company plc - Item 2
Consolidated
[[Image Removed: prgo-20220402_g1.jpg]]
[[Image Removed: prgo-20220402_g2.jpg]]
* Total net sales by geography is derived from the location of the entity that
sells to a third party.
Three Months Ended April 2, 2022 vs. Three Months Ended April 3, 2021
Net sales increased $64.5 million, or 6.4%, primarily due to:
•$98.2 million increase due primarily to a $49.1 million increase in cough/cold
sales from higher incidences of cough/cold and flu-like illnesses globally, an
increase of $35.0 million in U.S. Nutrition business stemming from store brand
infant formula share gains due partly to a competitor recall, an increase of
$32.8 million from the addition of contract manufacturing sales to the divested
RX business, and positive pricing, partially offset by sales declines in other
product categories.
•$33.6 million decrease from unfavorable foreign currency translation.
Operating income decreased $29.7 million, or 57.8%, due primarily to:
•$30.6 million decrease in gross profit due primarily to $27.9 million in cost
of goods sold inflation and increased freight expenses, which were partially
offset by pricing benefits; $17.2 million of unfavorable foreign currency
translation and an increase in customer service penalties, partially offset by
higher gross profit flow-through resulting from higher sales volumes. Gross
profit as a percentage of net sales decreased 510 basis points compared to the
prior year due to the same factors as gross profit, and from the addition of
third party sales to the divested RX business.
•$0.9 million decrease in operating expenses favorably impacted operating income
due primarily to:
•Decrease in operating expenses related to favorable foreign currency
translation, gain on sale of the ScarAway® brand asset, lower legal expenses and
cost savings related to Project Momentum;
•partially offset by a loss on disposal of a fixed asset, consulting fees
related to the integration of HRA, increased distribution expenses, higher
planned advertising and promotion expenses to support brand growth, higher
restructuring expenses associated with supply chain restructuring, and
share-based compensation.
50
--------------------------------------------------------------------------------
Perrigo Company plc - Item 2
CSCA
CONSUMER SELF-CARE AMERICAS
Recent Trends and Developments
•Currently, most of the markets in which we operate have relaxed COVID-19
related restrictions and have returned to in-person activities, leading to
normalizing incidence levels of factors that may impact sales of our products,
including cough, cold and flu-like illnesses. For instance, we experienced
higher demand in the first quarter for our Upper respiratory and Pain and Sleep
Aid categories relative to the first quarter of 2021 when there was very low
incidence of cough, cold and flu-like illness, which we attribute to COVID-19
social distancing and mask requirements. We expect consumer purchasing patterns
to normalize over the long-term but may be unpredictable and may be impacted by
the duration and severity of COVID-19 in the short-term. Refer to " Impact of
COVID-19 Pandemic " above.
•Gross margin continues to be negatively impacted by significant inflation and
disruption costs in our supply chain, which we expect to be substantially offset
by pricing actions and productivity improvements in the second half of 2022.
Starting in the second half of 2021, supply chain disruptions, including a lack
of truck drivers in the U.S. and record delays at global shipping ports, led to
higher unfulfilled customer orders and higher input costs compared to the prior
year. We took a series of actions to improve the situation, including
reconfiguring our distribution system for short term shipments, outsourcing
highly complex product lines to a third party logistic provider, adding regional
carriers for challenged shipping lanes, hiring additional distribution center
personnel, and increasing the purchase cycle as it relates to the manufacturing
process. Subsequent ongoing supply chain disruption resulting from the COVID-19
pandemic and Russian war in Ukraine has driven prices higher for many of the
cost of goods sold items and commodities we procure. We have implemented
additional pricing actions, and combined with expected productivity
improvements, we expect these actions will substantially offset inflationary
pressures in the second half of 2022, however the duration and extent of
inflation pressure, including impacts from the Russian war in Ukraine, as well
as the acceptance of pricing actions in the markets we operate, is uncertain.
•On March 9, 2022, we completed the sale of our Latin America businesses to
Advent International (refer to Item 1. Note 3 ), resulting in a $1.4 million
loss during the quarter. This transaction is part of Perrigo's margin
improvement program and Project Momentum cost savings initiative.
Segment Financial Results
Three Month Comparison
Three Months Ended
April 2, April 3,
(in millions, except percentages) 2022 2021
Net sales $ 710.0 $ 640.5
Gross profit $ 172.5 $ 194.5
Gross profit % 24.3 % 30.4 %
Operating income $ 78.5 $ 95.6
Operating income % 11.1 % 14.9 %
51
--------------------------------------------------------------------------------
Perrigo Company plc - Item 2
CSCA
Three Months Ended April 2, 2022 vs. Three Months Ended April 3, 2021
Net sales increased $69.5 million, or 10.9%, due to:
•Higher net sales in the Nutrition, Upper respiratory, Other, and Pain and
sleep-aids categories more than offset declines in Healthy lifestyle, Skincare
and personal hygiene and Oral care categories.
Sales Three Months Ended
April 2, April 3,
(in millions, except percentages) 2022 2021 $ Change % Change
Upper respiratory $ 152.8 $ 118.6 $ 34.2 28.8 %
Nutrition 127.2 92.2 35.0 38.0 %
Digestive health 118.6 118.4 0.2 0.2 %
Pain and sleep-aids 102.9 95.1 7.8 8.2 %
Oral care 70.4 75.0 (4.6) (6.1) %
Healthy lifestyle 68.2 76.7 (8.5) (11.1) %
Skincare and personal hygiene 48.5 55.3 (6.8) (12.3) %
Vitamins, minerals, and supplements 7.7 7.8 (0.1) (1.3) %
Other CSCA 13.7 1.4 12.3 878.6 %
Total CSCA $ 710.0 $ 640.5 $ 69.5 10.9%
Sales in each category were driven primarily by:
•Upper respiratory: Net sales of $152.8 million increased 28.8% due primarily to
higher incidences of cough/cold and flu-like illnesses that led to strong demand
for cough/cold products, particularly store brand liquid-based cough/cold
offerings and demand for oral allergy products;
•Nutrition: Net sales of $127.2 million increased 38.0% due primarily to strong
growth in U.S. store brand infant formula stemming from share gains and a
competitor recall, new product launches within infant formula and continued
growth in the oral electrolytes business;
•Digestive health: Net sales of $118.6 million increased 0.2% as growth in
e-commerce was offset by temporary packaging constraints on a specific product,
which is expected to alleviate during the second half of 2022, and lower
category consumption of proton pump inhibitors compared to the prior year;
•Pain and sleep-aids: Net sales of $102.9 million increased 8.2% due primarily
to strong demand for children's analgesics products stemming from higher
incidences of cough/cold and flu-like illnesses, partially offset by higher
demand for certain premium dosage forms where the Company today does not provide
a store brand offering;
•Oral care: Net sales of $70.4 million decreased 6.1% due primarily to delayed
receipt of products manufactured outside the U.S., leading to unfulfilled
customer orders;
•Healthy lifestyle: Net sales of $68.2 million decreased 11.1% due primarily to
the discontinuation of diabetes products and lower category consumption and
share of certain smoking cessation products;
•Skincare and personal hygiene: Net sales of $48.5 million decreased 12.3% due
primarily to service challenges related to the now divested ScarAway® brand and
discontinued product in non-strategic category segments; and
•Vitamins, minerals and supplements ("VMS") and Other: Net sales of
$21.4 million increased 132.6% due primarily to contract manufacturing sales to
the divested RX business.
52
--------------------------------------------------------------------------------
Perrigo Company plc - Item 2
CSCA
Operating income decreased $17.1 million, or 17.9%, due primarily to:
•$22.0 million decrease in gross profit due primarily to cost of goods sold
inflation and increased freight expenses, which were partially offset by pricing
benefits, lower profitability in contract manufacturing sales, unfavorable
product mix, and an increase in customer service penalties, partially offset by
higher gross profit flow-through resulting from higher sales volumes. Gross
profit as a percentage of net sales decreased 610 basis points compared to the
prior year due to the same factors as gross profit, and the addition of third
party sales to the divested RX business.
•$4.9 million decrease in operating expenses due primarily to a $3.6 million
gain on the sale of ScarAway®, a U.S. OTC scar management brand, and lower R&D
expenses, partially offset by higher distribution costs due primarily to
increased third party logistics and warehouse costs.
CONSUMER SELF-CARE INTERNATIONAL
Recent Trends and Developments
•Currently, most of the markets in which we operate have relaxed COVID-19
related restrictions and have returned to in-person activities, leading to
higher incidences of factors that may impact sales of our products, including
cough, cold and flu-like illnesses. For instance, we experienced higher demand
in the first quarter for our Upper respiratory and Pain and Sleep Aid categories
relative to the first quarter of 2021 when there was very low incidence of
cough, cold and flu-like illness, which we attribute to COVID-19 social
distancing and mask requirements. We expect consumer purchasing patterns to
normalize over the long-term but such patterns may be unpredictable and may be
impacted by the duration and severity of COVID-19 in the short-term. Refer to
" Impact of COVID-19 Pandemic " above.
•The Russia invasion of Ukraine and resulting economic and political sanctions
imposed by the United States, United Kingdom, European Union, and other
countries on Russia, Belarus, and occupied regions in Ukraine has negatively
impacted our results of operations in the region. For the year ended December
31, 2021, these countries included approximately $27 million of net sales, $15
million of gross profit, and $8 million of operating income. In March 2022, we
halted all sales to distributors in Russia and sales in Ukraine were severely
depressed. While there is a possibility that sales levels may rebound in
Ukraine, they are not likely to materialize in the short-term. Refer to " War
in Ukraine " above.
Segment Financial Results
Three Month Comparison
Three Months Ended
April 2, April 3,
(in millions, except percentages) 2022 2021
Net sales $ 364.5 $ 369.5
Gross profit $ 165.3 $ 173.9
Gross profit % 45.3 % 47.1 %
Operating income $ 16.2 $ 17.4
Operating income % 4.4 % 4.7 %
Three Months Ended April 2, 2022 vs. Three Months Ended April 3, 2021
Net sales decreased $5.0 million, or 1.4%, due to:
•$33.6 million, or 9.1%, decrease from unfavorable foreign currency translation.
•$28.6 million, or 7.7%, increase driven primarily by a strong rebound in
categories that were negatively impacted by the reduced COVID-19
pandemic-related consumer demand in the prior year (including cough, cold and
flu related products, sun burn care and head lice offerings), pricing actions
and new products sales.
53
--------------------------------------------------------------------------------
Perrigo Company plc - Item 2
CSCI
Sales Three Months Ended
April 2, April 3,
(in millions, except percentages) 2022 2021 $ Change % Change
Skincare and personal hygiene $ 101.9 $ 107.0 $ (5.1) (4.8) %
Upper respiratory 61.4 42.9 18.5 43.1 %
Pain and sleep-aids 51.7 49.0 2.7 5.5 %
Vitamins, minerals, and supplements 47.9 59.0 (11.1) (18.8) %
Healthy lifestyle 42.7 50.3 (7.6) (15.1) %
Oral care 24.4 25.5 (1.1) (4.3) %
Digestive health 9.2 8.5 0.7 8.2 %
Other CSCI 25.3 27.3 (2.0) (7.3) %
Total CSCI $ 364.5 $ 369.5 $ (5.0) (1.4) %
Sales in each category were driven primarily by:
•Skincare and personal hygiene: Net sales of $101.9 million decreased 4.8%, or
an increase of 4.9% excluding the impact from currency translation, driven
primarily from increased sales of the anti-parasite brand Paranix, due to the
easing of COVID-19-related restrictions, and strong performances and new product
launches in the ACO and Sebamed skincare lines;
•Upper respiratory: Net sales of $61.4 million increased 43.1%, or 56.6%
excluding the impact of currency translation, as the higher incidences of
cough/cold and flu-like illnesses led to strong demand for cough/cold products,
including Bronchonolo, Coldrex, Phytosun, Physiomer and U.K. store brands. New
products also contributed to growth in the quarter;
•Pain & sleep-aids: Net sales of $51.7 million increased 5.5%, or 13.5%
excluding the impact of currency translation, due primarily to an increase in
U.K. store brand consumption and higher demand for Solpadeine, a codeine-based
analgesics product;
•VMS: Net sales of $47.9 million decreased 18.8%, or 10.5% excluding the impact
of currency translation, due primarily to lower category consumption and the
lingering impact from the third quarter 2021 recall of certain batches of
Davitamon and Abtei;
•Healthy lifestyle: Net sales of $42.7 million decreased 15.1%, or 7.6%
excluding the impact of currency translation, due primarily to lower net sales
in the XLS Medical weight management franchise stemming from lower category
consumption and timing of NiQuitin smoking cessation product sales to customers;
•Oral care: Net sales of $24.4 million decreased 4.3%, or an increase of 5.5%
excluding the impact of currency translation, due primarily to customer
restocking following supply constraints last year;
•Digestive health and Other: Net sales of $34.5 million decreased 3.6%, or an
increase of 3.1% excluding the impact of currency translation, due primarily to
higher sales of other distribution brands.
Operating income decreased $1.2 million, or 6.9%, due primarily to:
•$8.6 million decrease in gross profit due primarily to $17.2 million in
unfavorable foreign currency translation and negative impact from the Russian
war in Ukraine, partially offset by higher gross profit flow-through resulting
from higher sales volumes. Gross profit as a percentage of net sales decreased
180 basis points due primarily to the mix impact of higher growth in store brand
and contract manufacturing compared to branded sales, and lower operational
productivity due to inflationary pressures.
•$7.4 million decrease in operating expenses due primarily to favorable foreign
currency translation, partially offset by higher advertising and promotion
investments to support brand growth.
54
--------------------------------------------------------------------------------
Perrigo Company plc - Item 2
Unallocated, Interest, Other, and Taxes
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
April 2, April 3,
2022 2021
$ 73.0 $ 61.6The increase of $11.4 million in unallocated expenses during the three months
ended April 2, 2022 compared to the prior year period was due primarily to an
increase in consulting fees, share-based compensation, a loss on disposal of a
fixed asset, and expenses associated with supply chain restructuring. This was
partially offset by lower legal expenses and cost savings related to Project
Momentum.
Interest expense, net, and Other (income) expense, net
Three Months Ended
April 2, April 3,
(in millions) 2022 2021
Interest expense, net $ 35.8 $ 32.0
Other (income) expense, net $ (1.1) $ 2.4Interest Expense, Net
The $3.8 million increase during the three months ended April 2, 2022, compared
to the prior year period was due primarily to an increase in interest expense
from a step up in interest rate on our 2020 Notes from 3.15% to 3.90% during the
fourth quarter of 2021 and cross currency swap termination expenses.
Other (Income) Expense, Net
The $3.5 million decrease in expense during the three months ended April 2, 2022
compared to the prior year period was due primarily to a favorable pension plan
adjustment.
© Edgar Online, source Glimpses
PERRIGO COMPANY PLC 
