Perrigo Company plc — Q2 2021 Form 10-Q
Reporting period: Three and six months ended July 3, 2021. Figures are in U.S. dollars; financial results below are for continuing operations unless noted. Perrigo sells OTC and other consumer self-care products through Consumer Self-Care Americas (CSCA) and Consumer Self-Care International (CSCI).
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $981.1 million | $948.8 million | $1,991.1 million | $2,032.0 million |
| Gross profit / margin | $349.0 million / 35.6% | $347.2 million / 36.6% | $717.4 million / 36.0% | $740.9 million / 36.5% |
| Operating income (loss) | $(125.9) million | $62.7 million | $(74.6) million | $149.1 million |
| Continuing-operations income (loss), net | $(111.9) million | $12.4 million | $(109.1) million | $70.1 million |
| Net income (loss), including discontinued operations | $(57.7) million | $60.6 million | $(19.6) million | $167.0 million |
| Diluted EPS | $(0.43) | $0.44 | $(0.15) | $1.22 |
- Q2 net sales rose 3.4%, but gross margin fell 1.0 percentage point. Six-month sales declined 2.0% and gross margin fell 0.5 point.
- Operating results included a $158.6 million impairment charge related to the planned sale of the Mexico and Brazil OTC businesses: $152.5 million on held-for-sale assets and $6.1 million on goodwill. The charge drove the reported operating loss.
- Six-month operating cash flow was an outflow of $82.1 million, versus an inflow of $462.7 million a year earlier. Investing cash outflow was $135.8 million; financing cash outflow was $84.4 million. Cash and cash equivalents were $317.5 million at quarter-end, down from $631.5 million at year-end 2020.
- Total borrowings were $3.56 billion, including $630.1 million classified as current debt; the $600 million term loan matures in August 2022. No borrowings were outstanding under the $1.0 billion revolver. Cash at quarter-end excludes the approximately $1.5 billion received after quarter-end from the RX business sale.
Changes, transactions, and management commentary
- Q2 sales growth reflected favorable foreign exchange and CSCI growth, partly offset by lower CSCA sales. For the first half, reduced cough-and-cold sales, comparison with 2020 pandemic pantry loading, and U.S. retailer inventory reductions outweighed currency and acquisition benefits.
- Management reported a rebound in consumer takeaway in the U.S. and Europe during Q2 as markets reopened, while shipments lagged consumption amid customer inventory reductions and channel shifts. Lower cough-and-cold illness remained a significant headwind.
- Higher input costs were partly offset by procurement actions and price increases. Perrigo reinstated CSCI advertising and promotion spending to pre-pandemic levels in Q2; pandemic-related supply-chain and material costs were expected to continue into early 2022.
- Perrigo completed the sale of its RX business to Altaris on July 6, 2021, for $1.55 billion, subject to customary adjustments. The business is reported as discontinued operations. Management described the sale as a step toward becoming a pure-play consumer self-care company and said it was evaluating uses for the proceeds. The filing estimated an immaterial pretax gain, subject to final settlement.
- The Latin American OTC business sale to Advent was expected to close in the second half of 2021; its assets and liabilities were classified as held for sale at quarter-end.
- No numerical earnings or sales guidance was provided in the supplied filing text. Management said second-half purchasing patterns could normalize, but results remain dependent on pandemic developments, consumer behavior, retailer inventories, and cost trends.
Risks, contingencies, and unusual items
- Debt covenant: Perrigo was not in compliance with its 3.75:1 maximum leverage covenant at July 3. Lenders waived the breach and amended the covenant to 5.75:1 for Q3 2021, returning to 3.75:1 in Q4. The filing cautions that future compliance is not assured. Moody’s downgraded Perrigo to Ba1, negative, after quarter-end.
- Tax disputes: Irish Revenue’s Tysabri-related assessment was reduced by more than €660 million based on adjustments it would not oppose, leaving Perrigo’s estimate of the disputed claim below €1.0 billion, before interest and penalties. The appeal was scheduled for November 2021. A separate IRS transfer-pricing matter involving Athena carried a proposed $843 million tax and penalty amount; treaty discussions were ongoing. The filing states that no payment on these assessments is currently due pending final resolution.
- Litigation: The company faces generic-drug price-fixing cases, securities litigation, and product-liability matters including ranitidine and talc claims. Perrigo recorded approximately $65 million of litigation accruals and a $56.2 million insurance recovery receivable; it cannot estimate a maximum possible loss for various matters. Insurers also challenged coverage for certain securities litigation.
- COVID-19, supply-chain disruption, changing consumer demand, foreign exchange, pricing pressures, product recalls, and litigation or tax outcomes could affect results, cash flows, and liquidity. Management reported disclosure controls and internal control over financial reporting were effective as of July 3, 2021.
Investor facts to verify
- Final RX-sale proceeds and adjustments, and the company’s use of the approximately $1.5 billion received after quarter-end.
- Progress on the Latin American divestiture and any further impairment or closing adjustments.
- Leverage-covenant compliance, refinancing or repayment plans for the 2022 term loan, and the impact of the credit-rating downgrade.
- Developments and potential cash exposure from the Irish and U.S. tax disputes, price-fixing and securities litigation, and product-liability claims.
- Whether consumer takeaway converts into shipments, and whether pricing and procurement actions offset inflation, freight, and supply-chain costs.