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Perrigo promises to refocus, ‘fix the core’ after dismal third quarter COURTESY PHOTO

Perrigo promises to refocus, ‘fix the core’ after dismal third quarter

BY Friday, November 09, 2018 09:27am

ALLEGAN — Perrigo Co. plc’s new CEO promised to return the company to “its winning ways” following a dismal quarterly earnings report.

On Thursday, Perrigo reported lower sales of $1.13 billion for the third quarter, down 8 percent from the $1.23 billion in the same period a year earlier.

The company recorded a quarterly net loss of $68 million, or 49 cents per diluted share. That compares with net income of $45 million, or 32 cents per diluted share, in the third quarter of 2017.

Perrigo also cut sales and earnings guidance for 2018.

CEO Murray Kessler — Perrigo’s third chief executive since January — told brokerage analysts during a Thursday conference call that he expects to have a full plan by next spring to improve performance.

“As I see it, Perrigo is a great company that has gotten off track in the last few years, as once again demonstrated in the quarterly results and projection for the remainder of fiscal 2018,” said Kessler, who joined Perrigo as CEO a month ago. “The challenges I saw confronting Perrigo today are the result of distraction, shifts in leadership, and a rapidly changing external environment that was not properly addressed.”

Perrigo (Nasdaq: PRGO), which is based in Ireland and operated from Allegan, partly attributed the quarterly results to the generic drug division that saw sales decline 28.5 percent to $179 million from $251 million a year earlier. Perrigo plans to sell or spin out the generic drug business to focus on its core consumer health care line that produces store-brand, over-the-counter medications.

Chief Financial Officer Ron Winowiecki attributed the generic division’s underperformance largely to “the absence of new products, coupled with price erosion within our authorized generic portfolio.” What Winowiecki called “customer service challenges” also resulted in lower sales than expected and higher customer service costs, “which are being addressed,” he said.

Perrigo’s Consumer Healthcare Americas division, which accounts for half of the company’s revenues, recorded flat sales of $596 million in the third quarter.

The company has identified “various operating inefficiencies, which have impacted gross profit and our ability to achieve customer service expectations in both our U.S. Consumer and (generic) businesses,” Winowiecki said. Driving the inefficiencies are rising input costs, lower productivity related primarily to a tight labor market, and competing priorities, he said.

“We are not satisfied with our overall performance results, and corrective actions are under way. Perrigo has undergone an immense amount of organizational change over the last few years, and with the planned separation of the (generic) business, we continue to evolve as an organization,” Winowiecki said. “At the same time, the pace of change in our business environment is arguably unprecedented. While the team has done a tremendous job responding to and embracing these shifts, we lost some focus, which impacted our performance and our ability to achieve our 2018 operating objectives.”

Perrigo reduced guidance for full-year 2018 results to sales of $4.72 billion with adjusted net income of $4.45 to $4.65 per diluted share. Perrigo in August provided guidance for full-year sales of $4.8 billion to $4.9 billion with adjusted net income of $4.75 to $4.95 per diluted share.

Thursday’s quarterly report sent Perrigo shares down more than 16 percent for the day to close at $62.88.

Despite the present difficulty, Kessler said he sees Perrigo getting active again in M&A, although “I don’t see a transformational acquisition in the near term.”

“I see bolt-ons helping stabilize or give us scale in certain markets, in Europe, and in the U.S. Some of these new categories that present themselves from a self-care definition versus a health care definition require small acquisitions for technology or to give us a certain skill set. That could be on the table,” Kessler said. “But job one, fix the core, get the core going. The volume is strong. The talent is strong. There’s no resources that have been cut. R&D budgets are intact, which I was glad to see when I got here. All the makings are there. The organization needs to focus and go after those opportunities.”

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