Perrigo Company plc, a leading provider of over-the-counter (OTC) health and wellness solutions, has faced a mix of headwinds and opportunities in recent quarters. The company reported annual net income of -$12.7 million, annual revenue of $4,655.6 million, annual operating cash flow of $405.5 million, and annual free cash flow of $303.8 million in its latest fiscal year.
Financials
In the first quarter of 2024, Perrigo's net sales decreased by 8.4% year-over-year to $1,082.1 million, primarily due to lower net sales in the U.S. Nutrition segment and exited product lines. Operating income declined by 213.8% to -$55.2 million, driven by a $56.1 million decrease in gross profit and a $47.6 million increase in operating expenses.
Consumer Self-Care Americas (CSCA) Segment
The Consumer Self-Care Americas (CSCA) segment, which comprises Perrigo's consumer self-care business in the U.S. and Canada, saw net sales decline by 15.7% to $644.1 million, with organic net sales down 14.6%. This was primarily due to lower net sales in U.S. Nutrition, driven by actions to strengthen the infant formula network, and lower distribution in Oral Care. Gross profit in CSCA decreased by 280 basis points to 23.8% of net sales.
Consumer Self-Care International (CSCI) Segment
In contrast, the Consumer Self-Care International (CSCI) segment, which covers Perrigo's consumer self-care business outside of the U.S. and Canada, delivered a strong performance. Net sales increased by 4.7% to $437.9 million, with organic net sales growth of 7.0%. This was driven by strategic pricing actions and new product launches, particularly in the Skin Care and Women's Health categories. CSCI's gross margin declined by 200 basis points to 46.6%, but operating margin expanded by 290 basis points to 19.7%.
Recent Developments
Perrigo's management has been proactive in addressing the challenges faced in the infant formula business. The company has made significant progress in augmenting and strengthening its infant formula manufacturing network, including pausing production for comprehensive cleaning and infrastructure improvements, as well as enhancing quality protocols and manufacturing processes. While the recovery of manufacturing volumes is expected to continue throughout 2024, the company does not anticipate extended shutdowns beyond normal maintenance activities.
The launch of Opill, Perrigo's over-the-counter oral contraceptive, has been a significant milestone for the company. The product has been made available at more than 65,000 retail locations across the U.S., and the early response from customers, academics, and consumers has been very positive. Perrigo is committed to advancing women's health and plans to further innovate and provide accessible solutions that empower women to take charge of their self-care journey.
Business Overview
Perrigo's management has also outlined its blueprint for the "One Perrigo" strategy, which aims to consumerize, simplify, and scale the business. The company's priorities through fiscal 2025 include executing its core business to maximize free cash flow generation and deleveraging, while implementing operational model enhancements to build a leaner, more efficient, and agile global organization. Looking ahead to 2026 and beyond, Perrigo plans to realize its blended branded strategy, focusing on sustainable, value-accretive innovation and global branded growth with a focus on accretive margins, cash flow, and returns.
Liquidity
The company's liquidity position remains strong, with cash on the balance sheet of $659 million as of the end of the first quarter of 2024. Perrigo expects to maintain a net leverage ratio of approximately 3.8x to 4x by the end of the year, supported by the proposed divestment of its HRA Rare Diseases business and the redeployment of the proceeds for debt repayment.
Risks and Challenges
Perrigo's financial performance has been impacted by various factors, including the actions taken to strengthen its infant formula business, SKU prioritization initiatives, and macroeconomic headwinds such as inventory destocking at U.S. retail customers. However, the company remains focused on executing its strategic priorities, driving margin expansion, and positioning itself for long-term sustainable growth.
Outlook
The company's guidance for the full year 2024 remains unchanged, with expected organic net sales growth of 1% to 3% and adjusted earnings per share in the range of $2.50 to $2.65, excluding the impact of the infant formula business. Perrigo's management is confident in the company's ability to navigate the current challenges and unlock the potential of its diversified portfolio of OTC health and wellness solutions.
Conclusion
As Perrigo continues to transform and execute its "One Perrigo" strategy, investors will be closely watching the company's progress in strengthening its infant formula operations, driving growth in its core consumer self-care business, and delivering on its long-term strategic objectives. With a focus on innovation, operational excellence, and financial discipline, Perrigo is well-positioned to capitalize on the evolving self-care market and create value for its shareholders.