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Perrigo (PRGO) Down 4.7% Since Last Earnings Report: Can It Rebound?

Zacks

A month has gone by since the last earnings report for Perrigo (PRGO). Shares have lost about 4.7% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.

Perrigo Beats on Q3 Earnings, Cuts View

Perrigo reported third-quarter 2018 adjusted earnings of $1.09 per share, which beat the Zacks Consensus Estimate of $1.05. Earnings fell 21.9% year over year.

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Net sales in the reported quarter decreased 8% year over year to $1.13 billion, missing the Zacks Consensus Estimate of $1.17 billion. The decline was mainly due to lower sales volume in Rx segment. Sales of $35 million from new products were partially offset by loss of $9 million in sales of discontinued products.

Segment Discussion

Effective Jan 1, 2017, the company’s reporting segments are Consumer Health Care Americas (“CHCA”), Consumer Health Care International (“CHCI”), Prescription Pharmaceuticals (“RX”) and Other Segment.

CHCA:  CHCA net sales in the third quarter of 2018 came in at $596 million, down 0.4% year over year. This downside can be attributed to lower net sales in the animal health business and gastrointestinal categories. However, strong performance of smoking cessation, infant nutrition and dermatological categories partially offset the decline in CHCA net sales. While new product sales of $13 million contributed to the top line, the company lost sales of $1 million from discontinued products. Excluding animal health category, sales increased 3% organically.

CHCI: CHCI segment reported net sales of $358 million, down 2.1% from the year-ago period. However, sales increased 0.6% on a constant currency basis. Excluding the exited Russian and unprofitable distribution businesses in 2017 and unfavorable foreign currency movements of $10 million, net revenues increased 1%. The growth was driven by higher sales of anti-parasite and personal care categories, partially offset by lower sales in lifestyle category and non-branded U.K. businesses.

While new product sales of $19 million contributed to the top line, the company lost sales of $5 million from discontinued products.

RX:  This segment’s net sales declined 28.5% to $179 million on a reported basis as well as on a constant-currency basis. The decline in sales was due to lower sales volume amid challenges in generics market and customer services. Lost sales due to discontinued products were $4 million.

2018 Earnings Outlook

Perrigo lowered its full-year revenue guidance and now expects it to be approximately $4.72 billion in 2018 compared with the previous expectation of $4.8-$4.9 billion. This includes the impact of reduced RX segment sales outlook and unfavorable foreign currency movement expectation of $65 million.

The company also reduced its adjusted earnings guidance to the band of $4.45 to $4.65 per share from the previously announced $4.75 to $4.95 per share due to pricing pressure in Rx segment and reduced margin expectations in the CHCA segment, partially offset by CHCI’s improved expectations.

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 -23.03% due to these changes.

VGM Scores

At this time, Perrigo has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. 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. It's no surprise Perrigo has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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