PERRIGO COMPANY PLC 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
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 enhance individual well-being by empowering consumers to proactively prevent or treat conditions that can be self-managed.
In
The sale of the RX business will establish
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 self-care categories, and contract manufacturing)
in the
Our segments reflect the way in which 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 17 . For results by segment, see "Segment Results" below.
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Perrigo Company plc - Item 2 Executive Overview Highlights Impact of COVID-19 Pandemic
We have been impacted by the coronavirus (COVID-19) global pandemic and the responses by government entities to combat the virus. We currently continue to operate in all our jurisdictions and are complying with the rules and guidelines prescribed in each jurisdiction. We are closely monitoring the impact of COVID-19 on all aspects of our business in all our global locations. Our first priority has been, and will continue to be, the safety of our employees who continue to come to work and are dedicated to keeping our essential products flowing into the market. We have taken extra precautions at our facilities, to help ensure the health and safety of our employees, that are in line with guidance from global and local health authorities. Among other precautions implemented, we have generally restricted access to our production facilities worldwide to essential employees only and permitted a limited number of nonessential employees into other facilities with a strict approval process, implemented a multi-step pre-screening access process before an employee can enter a facility, communicated regularly with employees and provided education and implemented controls related to physical distancing and hygiene measures, implemented remote work arrangements where appropriate, restricted business travel, and prioritized production of essential products for several months following the initial outbreak. To date, these arrangements have not materially affected our ability to maintain our business operations, including the operation of financial reporting systems, internal control over financial reporting, and disclosure controls and procedures.
Both the outbreak of the disease and the actions to slow its spread have had an adverse impact on our operations by, among other things, increasing absenteeism, affecting the supply of raw materials and third party supplied finished goods, and preventing many of our employees from coming to work. We have responded to such impacts by, among other things, implementing protocols to protect the health of factory workers, adjusting production schedules, and seeking alternate suppliers where available, and so far, most of our facilities have continued to produce at high levels despite these challenges. However, while many jurisdictions are relaxing COVID-19 related restrictions, some jurisdictions have experienced new surges in COVID-19 cases or new strains of the virus and may implement new or renewed restrictions. In addition, as conditions worldwide continue to evolve, uncertainty remains about the timing of widespread availability and acceptance of vaccines and the efficacy of current vaccines against evolving strains of the virus. As such, if the pandemic continues or intensifies, it is possible that these or other challenges may begin having a larger impact on our operations. Additionally, concerns over the economic impact of COVID-19 have caused volatility in financial and other capital markets, which has adversely impacted, and may continue to adversely impact our stock price and our ability to access capital markets. The situation surrounding COVID-19 remains fluid, and we are actively managing our response and assessing potential impacts to our financial condition, supply chains and other operations, employees, results of operations, consumer demand for our products, and our ability to access capital. The magnitude of any such adverse impact cannot currently be determined due to a number of uncertainties surrounding COVID-19.
During the three months ended
Also, during the three months ended
Moving forward, it is uncertain if the consumer and customer behavior surrounding COVID-19 that has impacted net sales will continue or change and if our incremental operating costs will continue or change. Any change will likely depend on the duration and severity of the COVID-19 pandemic, including if new strains of the virus become more prevalent, contagious or harmful, and each individual country's response to the pandemic. In addition, the dynamics we are experiencing now may continue or change as COVID-19 vaccines continue to be distributed. The impact of the current vaccination efforts on the evolution of the pandemic globally continues to remain uncertain at this time.
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Perrigo Company plc - Item 2 Consolidated RESULTS OF OPERATIONS CONSOLIDATED
Consolidated Financial Results
Three Month Comparison
Three Months Ended
April 3, March 28,
(in millions, except percentages) 2021 2020
Net sales $ 1,010.0 $ 1,083.3
Gross profit $ 368.4 $ 393.7
Gross profit % 36.5 % 36.3 %
Operating income $ 51.4 $ 86.4
Operating income % 5.1 % 8.0 %
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* Total net sales by geography is derived from the location of the entity that
sells to a third party.
Three Months Ended
Net sales decreased$73.3 million , or 7%, due to: •$84.2 million, or 8%, net decrease due primarily to: •$59.0 million net decrease in the CSCA segment due primarily to a decrease of$50.0 million resulting from the pandemic-related pantry load benefit in the prior year quarter. A further decrease of$35.0 million in sales of products in our upper respiratory and pain and sleep aids categories resulted from the very low incidence of cough and cold related illness this year. These declines were partially offset by an increase of$23.8 million in sales from our acquisition ofDr. Fresh in April of 2020. •$25.2 million net decrease in the CSCI segment due primarily to a decrease of$33.0 million in sales of products in our upper respiratory category resulting from the very low incidence of cough and cold related illness this year. A further decrease of$23.0 million resulted from the pandemic-related pantry load benefit in the prior year quarter. These decreases were partially offset by the incremental impact of new product sales, positive pricing, and$8.5 million of sales from the acquisitions of the three Eastern European Brands inOctober 2020 andDr. Fresh inApril 2020 .
•$10.9 million net increase due primarily to: •$25.2 million increase primarily from favorable Euro foreign currency translation; partially offset by
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Perrigo Company plc - Item 2 Consolidated
•$14.3 million decrease due to our divested Rosemont pharmaceuticals business previously included in our CSCI segment.
Operating income decreased
•$25.3 million decrease in gross profit due primarily to the decrease in net sales as described above. Gross profit as a percentage of net sales increased 20 basis points due primarily to favorable product mix; and •$9.7 million increase in operating expenses due primarily to: •$6.5 million increase in selling, administration and R&D expenses due primarily to unfavorable foreign currency translation and increased employee-related expenses, partially offset by a decrease in advertising and promotion expenses; and •$1.7 million increase in restructuring expenses associated with actions taken to streamline the organization.
Recent Developments
Irish Revenue Notice of Amended Assessment
As described in more detail in Item 1. Note 14 , on
Internal Revenue Service Audits of
As described in more detail in Item 1. Note 14 ,
On
Internal Revenue Service Audit of
On
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Perrigo Company plc - Item 2 Consolidated
scheduled for
Israeli Notice of Assessment
On
CONSUMER SELF-CARE
Recent Trends and Developments
•During the first quarter of 2021, net sales of cough and cold products decreased as a result of the very low incidence of cough and cold related illness this year. We believe the very low incidence of cough and cold related illness is attributed to social distancing and mask mandates put in place to combat the spread of COVID-19. With social distancing and mask mandates continuing, we currently anticipate that we will continue to experience lower demand for cough, cold and certain pain products through the first half of 2021. However, increased foot traffic at our retail customers suggests normalizing consumer purchasing routines could be expected in the second half of 2021.
Segment Financial Results
Three Month Comparison
Three Months Ended
April 3, March 28,
(in millions, except percentages) 2021 2020
Net sales $ 640.5 $ 700.6
Gross profit $ 194.5 $ 213.8
Gross profit % 30.4 % 30.5 %
Operating income $ 95.6 $ 122.1
Operating income % 14.9 % 17.4 %
Three Months Ended
Net sales decreased
•$59.0 million, or 8%, net decrease due primarily to a decrease of
•In OTC, the net sales decrease of
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Perrigo Company plc - Item 2 CSCA
•Nutrition net sales decreased
Operating income decreased
•$19.3 million decrease in gross profit due primarily to the decrease in net
sales as described above, higher input costs on certain products, and
unfavorable plant overhead absorption due primarily to lower production volumes
compared to the prior year pandemic-related pantry load benefit. Gross profit as
a percentage of net sales decreased 10 basis points due primarily to the
unfavorable plant overhead absorption described above and normal pricing
pressure, partially offset by favorable product mix; and
•$7.2 million increase in operating expenses due primarily to the inclusion of
CONSUMER SELF-CARE INTERNATIONAL
Recent Trends and Developments
•During the first quarter of 2021, net sales of cough and cold products decreased as a result of the very low incidence of cough and cold related illness this year. We believe the very low incidence of cough and cold related illness is attributed to social distancing and mask mandates put in place to combat the spread of COVID-19. With social distancing and mask mandates continuing, we currently anticipate that we will continue to experience lower demand for cough and cold products through the first half of 2021.
Segment Financial Results
Three Month Comparison
Three Months Ended
April 3, March 28,
(in millions, except percentages) 2021 2020
Net sales $ 369.5 $ 382.7
Gross profit $ 173.9 $ 179.9
Gross profit % 47.1 % 47.0 %
Operating income $ 17.4 $ 25.0
Operating income % 4.7 % 6.5 %
Three Months Ended
Net sales decreased
•$11.9 million increase due primarily to:
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Perrigo Company plc - Item 2 CSCI
•$26.2 million increase from favorable foreign currency translation primarily related to the Euro; partially offset by •$14.3 million decrease due to our divested Rosemont pharmaceuticals business.
Operating income decreased
•$6.0 million decrease in gross profit due primarily to the decrease in net sales as described above, partially offset by greater operating efficiencies. Gross profit as a percentage of net sales increased 10 basis points due primarily to greater operating efficiencies, partially offset by unfavorable product mix; and
•$1.6 million increase in operating expenses due primarily to unfavorable Euro foreign currency translation, and an increase in employee-related costs, partially offset by a decrease in advertising and promotion expenses.
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 3, March 28,
2021 2020
$ 61.6 $ 60.7 The increase of
Change in Financial Assets, Interest expense, net, and Other (income) expense (Consolidated)
Three Months Ended
April 3, March 28,
(in millions) 2021 2020
Change in financial assets $ - $ (1.6)
Interest expense, net $ 32.0 $ 28.9
Other (income) expense, net $ 2.4 $ 1.7 Change in Financial Assets
During the year ended
During the three months ended
Interest Expense, Net
The
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