Perrigo Company plc — Q1 2024 Form 10-Q
Reporting period: Three months ended March 30, 2024; comparator is the three months ended April 1, 2023. Perrigo is a consumer self-care and OTC health products company, reporting Consumer Self-Care Americas (CSCA) and Consumer Self-Care International (CSCI). Figures are unaudited and in U.S. dollars.
Key financial metrics
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Net sales | $1,082.1 million | $1,181.7 million |
| Gross profit / margin | $357.7 million / 33.1% | $413.8 million / 35.0% |
| Operating income (loss) / margin | $(55.2) million / (5.1)% | $48.5 million / 4.1% |
| Income (loss) from continuing operations | $4.1 million | $(1.1) million |
| Net income (loss) / diluted EPS | $2.0 million / $0.01 | $(3.0) million / $(0.02) |
| Net cash from (used in) operations | $(1.4) million | $19.4 million |
| Cash, cash equivalents and restricted cash | $658.5 million | $751.3 million at Dec. 31, 2023 |
| Total borrowings outstanding | $4,065.5 million | $4,073.4 million at Dec. 31, 2023 |
Current indebtedness was $440.6 million and long-term debt, less current portion, was $3,624.9 million. Working capital, as defined by the company excluding cash and current debt, was $1,034.0 million, versus $935.9 million at year-end. The $102.7 million income tax benefit contributed to positive continuing-operations income despite a $98.6 million pre-tax loss; the reported effective tax rate was 104.2%.
Material changes versus prior year
- Sales declined 8.4%, primarily from lower U.S. Nutrition sales amid infant-formula manufacturing remediation, SKU prioritization, customer inventory reductions, and exited product lines. Gross margin fell 190 basis points.
- CSCA sales declined 15.7% to $644.1 million and operating income fell to $15.7 million from $83.2 million. Nutrition sales decreased 34.6% to $90.6 million.
- CSCI sales increased 4.7% to $437.9 million and operating income rose to $26.5 million from $21.3 million. Skin Care sales grew 37.5%, while Upper Respiratory sales fell 18.5%.
- Operating results included $44.3 million of restructuring charges, compared with $3.4 million a year earlier, and a $34 million additional provision for securities litigation. Operating expenses also reflected lower selling expenses and Project Energize savings.
- Operating cash flow decreased by $20.8 million year over year, chiefly due to changes in accrued income taxes. Cash declined by $92.8 million during the quarter; dividends paid were $37.6 million.
Outlook, management commentary and risks
- No full-year revenue or earnings guidance is stated in the supplied filing text. The company says cash, operating cash flows, and available borrowing resources are expected to meet short- and long-term liquidity and capital needs; it was in compliance with debt covenants at quarter-end and had no revolver borrowings.
- The Supply Chain Reinvention Program targets $200–$300 million in annual run-rate savings by the end of 2028, with $350–$570 million of anticipated aggregate costs. The company expects $150–$200 million of annual savings by the end of 2025, alongside $300–$450 million of associated spending.
- Project Energize, launched in Q1, targets $140–$170 million of annualized pre-tax savings by 2026; $40–$60 million is expected to be reinvested. Estimated restructuring and related charges are $140–$160 million, with approximately 6% of company roles expected to be eliminated. About $17 million in savings had been achieved to date.
- Infant-formula remediation and quality investments have reduced manufacturing output and increased costs. Perrigo estimates $35–$45 million of 2024 cash costs for remediation and expects infant-formula results in 2024 to be below 2023 levels. It reports that large-scale plant resets are complete, while further site-level enhancements continue.
- After quarter-end, Perrigo announced a binding offer to sell its Rare Diseases business for up to €275 million (€190 million upfront and up to €85 million in earnouts), with closing expected in Q3 2024. The company expects a $20–$30 million impairment in Q2 related to held-for-sale measurement.
- S&P downgraded Perrigo in March; the downgrade increases the coupon on the 2030 notes from 4.650% to 4.900% for payments after June 15, 2024. Fitch also downgraded the company in April. Ratings, interest costs, and the December 2024 maturity of the remaining 3.900% notes merit monitoring.
- Material uncertainties include infant-formula regulation and production, inflation and supply-chain disruption, foreign exchange, and the wars in Ukraine and Israel. Litigation includes generic-drug price-fixing claims, product-liability cases, and securities matters. A proposed $97 million securities class-action settlement received preliminary court approval; final approval was scheduled for September 5, 2024. The company recorded $34 million of expense in Q1 and reported $100.9 million of litigation accruals and a $25.5 million insurance recovery receivable.
- Significant tax disputes remain. Perrigo received an IRS assessment notice in March and paid the related settlement after quarter-end in April. The company also describes pending refund litigation and potential future tax exposure; the ultimate outcomes are uncertain.
Investor verification priorities
- Check subsequent results for recovery in infant-formula output, sales, and margins, and progress on FDA-related remediation.
- Track whether Project Energize and Supply Chain Reinvention deliver stated savings and how restructuring and implementation costs compare with estimates.
- Verify closing terms and proceeds from the proposed Rare Diseases sale, including earnouts and the expected impairment.
- Monitor the securities settlement’s final approval, other litigation and insurance coverage, and changes in the $100.9 million litigation accrual.
- Review liquidity and refinancing plans around the remaining 2024 notes maturity, debt ratings, and the higher 2030 note coupon.
- Assess the impact of the unusual tax benefit and high effective tax rate, the post-quarter IRS settlement payment, and unresolved tax matters on future earnings and cash flow.