Perrigo Company plc — FY2022 Form 10-K
Business context and reporting period. Perrigo reported its fiscal year ended December 31, 2022; this annual filing is not a standalone fourth-quarter report. The company focuses on consumer self-care products in North America and internationally, reported in Consumer Self-Care Americas (CSCA) and Consumer Self-Care International (CSCI). The 2022 results include HRA Pharma from its April acquisition and exclude the Latin American businesses sold in March. The former Rx business is reported as discontinued operations.
Financial performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $4,451.6 million | $4,138.7 million |
| Gross profit / margin | $1,455.4 million / 32.7% | $1,416.2 million / 34.2% |
| Operating income / margin | $78.9 million / 1.8% | $410.4 million / 9.9% |
| Net loss | $140.6 million | $68.9 million |
| Operating cash flow | $307.3 million | $156.3 million |
| Cash and cash equivalents at year-end | $600.7 million | $1,864.9 million |
| Total borrowings outstanding | $4,106.6 million | $3,520.5 million |
- Sales rose 7.6%. Pricing actions, category growth, U.S. store-brand gains and the HRA Pharma and Gateway acquisitions more than offset unfavorable foreign exchange and divestitures.
- Gross margin fell 150 basis points, reflecting inflation, freight costs, lower productivity and acquisition inventory fair-value step-ups. Operating income fell 80.8%, principally because 2021 included a $417.6 million Omega arbitration award recorded as income; 2022 also included acquisition and restructuring costs.
- Net loss from continuing operations was $130.9 million in both years. FY2021’s consolidated results also reflected a substantial Irish tax charge, while FY2022 had a $9.7 million loss from discontinued operations.
- CSCA sales increased 8.6% to $2,925.9 million; operating income was $366.1 million versus $206.5 million. CSCI sales increased 5.5% to $1,525.7 million, but the segment recorded a $30.0 million operating loss versus $36.1 million operating income. Foreign exchange weighed on both segments, especially CSCI.
- Investing cash outflow was $1,958.6 million, primarily reflecting the $1.9 billion HRA Pharma acquisition. Financing cash inflow was $421.6 million, including new secured borrowing. Capital expenditures were $96.4 million.
- Working capital, excluding cash, assets and liabilities held for sale, and current debt, was $1,041.8 million versus $1,027.7 million. Management said cash, operating cash flow and available borrowing capacity should support short- and long-term needs.
Material developments, outlook and risks
- Acquisitions and portfolio changes: Perrigo acquired HRA Pharma for approximately $1.9 billion and Gateway, including an infant-formula plant and GoodStart brand, for $110 million. It sold its Latin American businesses and ScarAway. Acquired businesses contributed $236.3 million of 2022 sales and a combined $47.9 million operating loss, including purchase-accounting effects.
- Management’s outlook: The Supply Chain Reinvention Program targets $200–$300 million in annual run-rate savings by 2028, with estimated total implementation costs of $350–$570 million. The company expects $150–$200 million of annual savings by the end of 2025, alongside $300–$450 million of associated spending. These are targets contingent on successful execution, not guaranteed results. Management forecast 2023 capital expenditures of $125–$140 million.
- Products and regulation: FDA review of Opill, a proposed nonprescription daily oral contraceptive, was delayed; the FDA extended the review date by 90 days and had not set a new advisory committee meeting date in the filing. Irish regulators were reviewing the classification of nonprescription codeine products; Perrigo reported about $8 million in Irish codeine-product sales in 2022.
- Supply, inflation and currency: The company cited freight and labor constraints, higher commodity and input costs, and war-related disruption. Strategic pricing and supply-chain actions were intended to mitigate these pressures, but their duration and customer acceptance were uncertain. Currency weakness, particularly in the euro and pound, reduced reported sales and earnings.
- Debt and liquidity: Perrigo entered new secured credit facilities in 2022, including a $1.0 billion revolver with no year-end borrowings. It reported compliance with debt covenants. The facilities include leverage and interest-coverage tests; debt service, refinancing, ratings and variable-rate exposure remain relevant risks. A 1 percentage-point rate increase was estimated to add about $3.9 million of annual 2023 interest expense.
- Tax and legal contingencies: Uncertain tax position liabilities were $417.4 million including interest and penalties. The company disclosed material IRS disputes, including an Athena-related proposed assessment of $843 million; it stated payment is not required until resolution and said it disputes the IRS position. The 2022 litigation accrual was approximately $67.4 million, with a separate $38.4 million insurance recovery receivable. Price-fixing, securities, talc, ranitidine and other matters remain, with outcomes and potential losses uncertain.
- Asset valuation: Goodwill and intangible assets were substantial. CSCI’s estimated goodwill fair value exceeded carrying value by less than 10%, and the Rare Diseases reporting unit also had less than 10% headroom; the filing identifies sensitivity to discount rates, performance, integration synergies and program savings.
- Reporting and audit: The auditor issued an unqualified opinion on the financial statements and internal controls. Management and the auditor excluded HRA Pharma and Gateway from the year-end internal-control assessment; integration and testing were ongoing.
Important facts for investors to verify
- Whether acquired businesses and the Supply Chain Reinvention Program deliver the stated savings and growth, and how much cash investment and restructuring spending is required.
- Whether margins recover as inflation, freight costs, productivity and acquisition-related accounting effects change.
- Cash generation, leverage, debt maturities and covenant headroom following the HRA Pharma acquisition and financing.
- Developments in the Opill FDA review and the Irish codeine classification review.
- Updates on IRS disputes, litigation exposure, insurance recoveries and the significant goodwill valuation sensitivities.
- Progress integrating HRA Pharma and Gateway, including completion of their financial-reporting controls.