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Published in Health Care

‘Supply chain disruption was the culprit’ as Perrigo records quarterly net sales loss

BY Wednesday, November 10, 2021 02:47pm

ALLEGAN — Supply chain bottlenecks that include a truck driver shortage causing problems getting products to market cut into Perrigo Co. plc’s sales in the third quarter and led to a net loss.

Perrigo (Nasdaq: PRGO) today reported $1.04 billion in quarterly sales, a 3.8-percent increase from the $1 billion in the third quarter of 2020. Perrigo recorded a $58.8 million net loss for the third quarter, or 44 cents per diluted share.

Murray Kessler COURTESY PHOTO

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President and CEO Murray Kessler attributed the quarterly results to “massive one-time” and “very significant challenges this quarter related to the global supply chain disruption experienced by many companies in multiple industries.” That resulted in higher overhead and freight costs and lower operating efficiencies, Kessler told analysts in a conference call to discuss quarterly results.

The supply chain issue cost Perrigo $43 million in sales, $38 million of which was in the U.S.

The company had “unbelievable orders” in the quarter “and all of a sudden we couldn’t ship,” Kessler said.

“For net sales, supply chain disruption was the culprit. This led to an inability for Perrigo to meet very strong consumer demand in the quarter. Absent this supply chain disruption, net sales growth would have been in line with what we had projected,” Murray said. “We wouldn’t be having half the discussions we’re having right now had we just been able to ship the orders that we have.”

Perrigo has since outsourced what Kessler called “highly complex product lines to a third-party logistics provider, allowing more room on our trucks for higher profit (over-the-counter) products.” The company has also added regional freight carriers “for challenged shipping lanes,” and hired additional distribution center personnel. 

The company also is increasing the purchase cycle for product ingredients and packaging from 30 to 90 days “to make sure we have sufficient lead times for delivery,” he said. That resulted in a 25-percent increase in daily shipments in October, compared to the third quarter average.

“And not all of the actions have even been fully implemented yet. Some of these changes will remain in place until the larger U.S. supply chain normalizes. Some of these changes we intend to leave in place as a hedge against future disruption,” Kessler said.

While Perrigo expects consumer demand for products to “remain very strong” in the fourth quarter, “we also expect higher input costs, supply chain disruption, and the impact from under-absorbed overhead to continue,” he said. The company plans to increase prices for retailers and continue to cut costs, Kessler said.

The quarterly loss led Perrigo to reduce earnings guidance for all of 2021, from $2.50-$2.70 per diluted share that was expected three months ago to $2-$2.10 per diluted share.

Year-to-date sales totaled $3.03 billion, essentially flat from the first nine months of 2020. Perrigo recorded a nine-month loss of $78.5 million, or 59 cents per diluted share.

The year-to-date results were affected by a weak cough, cold and flu season last winter that cut into sales for medications and stemmed from efforts during the pandemic such as social distancing and wearing face masks that reduced illness.

‘MAJOR ACCOMPLISHMENTS’

The results came despite “major accomplishments” for Perrigo during the quarter, Kessler said. Those include selling the company’s generic drug business for $1.6 billion, the planned $2.1 billion acquisition of Paris-based HRA Pharma, a maker of over-the-counter self-care products, and settling a tax case in Ireland for far less than the Irish government initially sought to collect, noted Kessler, who launched a plan three years ago to transform Perrigo into a self-care company.

“And while COVID-19 has created many unforeseen challenges in 2020 and 2021, big challenges, we work through them as they occur, and we will not let them deter us from taking our vision to reality, nor hitting the ultimate growth plans we originally established,” Kessler said. “I fully understand that this was a bit of a punch in the stomach here relative to the cost situation. I don’t think it’s Perrigo specific. I think it is the macroeconomic trend that the world is facing and it’s real. The teams have responded, and we’ll be able to ship more products.”

Today’s sales and earnings report sent Perrigo’s share price down by more than 12 percent as of early afternoon.

Read 1000 times Last modified on Wednesday, 10 November 2021 14:50
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