The Perrigo Company (NASDAQ: PRGO)(TASE: PRGO) today announced results for the second quarter of fiscal year 2006 ended Dec. 24, 2005.
The acquisition of Agis Industries was completed on March 17, 2005. Agis was first included in the consolidated balance sheet as of March 26, 2005 and operating results were first included in the quarter ended June 25, 2005.
Perrigo Company
(in thousands, except per share amounts)
Second Quarter Six Months
2006 2005 2006 2005
Sales $359,697 $251,748 $679,431 $479,467
Net Income $25,366 $15,838 $38,277 $33,416
Diluted EPS $0.27 $0.22 $0.41 $0.46
Diluted Shares 93,963 73,285 94,167 73,166
Second Quarter Results
Net sales for the second quarter of fiscal 2006 were $359.7 million, an increase of 43 percent from $251.7 million last year, reflecting the addition of Agis' product sales. Net income was $25.4 million, or $0.27 per share, including a gain of $2.9 million after-tax, or $0.03 per share, on the sale of the Company's non-controlling interest in a Canadian distribution company. Last year, net income was $15.8 million, or $0.22 per share, which included a charge for a product recall of $5.3 million after-tax, or $0.07 per share.
Commenting on the second quarter, David T. Gibbons, Perrigo Chairman, President and Chief Executive Officer, said, "We are pleased with the performance of the Rx Pharmaceutical and API businesses which delivered strong results this quarter. Our results in Consumer Healthcare reflect the transition occurring in pseudoephedrine-based cough/cold products. The elimination of certain pseudoephedrine products and the shift to behind the counter by many retailers has resulted in lower cough/cold product sales, operational complexity and continued pressure on our Consumer Healthcare segment profits as we push to reformulate these products and introduce a record number of new products at the same time.
"Perrigo's financial position remains secure, with strong cash flow from operations of $55 million which has allowed us to repurchase approximately 1.2 million shares for $16 million so far this year."
Six Months Results
Net sales for the six months ended Dec. 24, 2005 were $679.4 million, an increase of $200 million, or 42 percent, compared with $479.5 million last year, reflecting the addition of Agis' product sales. Net income for the six months was $38.3 million, or $0.41 per share, compared with $33.4 million, or $0.46 per share, a year ago, which included a charge for a product recall of $5.3 million, or $0.07 per share.
Excluding an acquisition-related write-off of the step-up in the value of inventory acquired in the first quarter ($3.7 million after-tax, or $0.04 per share) and a gain on the sale of the non-controlling interest in a Canadian distribution company ($2.9 million after-tax, or $0.03 per share) in the second quarter, net income for the six months was $39.1 million, or $0.41 per share. A reconciliation of non-GAAP measures is shown in Table II at the end of this press release.
Consumer Healthcare
Consumer Healthcare segment sales in the quarter were $272.2 million compared with $251.6 million in the second quarter last year. These results included topical OTC product sales of $14 million related to the Agis acquisition and $17 million in new product sales, offset by a decline of $20 million of pseudoephedrine-based cough and cold products. Operating income was $32.1 million, compared with $26.5 million a year-ago.
For the first six months of fiscal 2006, Consumer Healthcare sales were $500.9 million compared with $479.3 million in the first six months last year. These results included topical OTC product sales of $32 million related to the Agis acquisition and $26 million in new product sales, offset by a decline of $43 million on pseudoephedrine-based cough and cold products. Operating income was $45.2 million, compared with $54.4 million a year ago, reflecting the incremental sales of lower-margin topical OTC products acquired in the Agis acquisition, the sales decline of higher-margin pseudoephedrine-based products and higher inventory obsolescence expenses.
Rx Pharmaceuticals
The Rx Pharmaceuticals segment reported sales of $28.6 million and operating income of $5.3 million. In the prior year, the Rx Pharmaceutical segment reported an operating loss of $2.4 million, reflecting the Company's investment in the start-up of the generics business. For the six months, sales were $57.7 million and operating income was $9.1 million, including a pre-tax charge of $2.8 million for a product recall in the first quarter, compared with an operating loss of $3.6 million in the same period last year.
API
Second quarter sales for the API segment were $26.9 million and operating income was $6.5 million. For the six months, sales were $53.7 million and operating income was $13.1 million. Excluding the first quarter write-off of the step-up in the value of inventory acquired of $1.7 million, the API segment had operating income of $14.9 million for the six months.
Other
The Other category, consisting of Israel Consumer Products and Israel Pharmaceutical and Diagnostic Products segments, reported sales of $32.0 million and operating income of $0.4 million. Sales for the first six months of fiscal 2006 were $67.2 million with an operating loss of $0.3 million. Excluding the first quarter write-off of the step-up in the value of the inventory acquired of $2.7 million, the Other category had an operating income of $2.4 million.
In the second quarter, unallocated expense was $5 million, including corporate costs of $3.6 million and integration costs of $1.4 million. For the first six months, unallocated expense was $7.1 million, consisting of corporate costs of $5.1 million and integration costs of $2.0 million.
New Developments
The Company announced today that it has received approval from the U.S. Food and Drug Administration (FDA) to market over-the-counter (OTC) nicotine polacrilex lozenges. With the approval, the Company has been granted 180 days of generic market exclusivity, beginning with the first shipments which are expected within 30 days. The FDA determined the product is bioequivalent to GlaxoSmithKline's Commit® lozenge, which is indicated as an aid to smoking cessation. Sales for the brand name product at retail were approximately $100 million in calendar 2005.
The Company has entered into a five-year supply, purchase and license agreement with another pharmaceutical company pursuant to which the Company will produce API for the other company and sell certain intellectual property assets. The Company has also entered into a collaboration agreement with that company pursuant to which the two companies will collaborate on the development and manufacture of two drug products. Revenues from sales under the supply, purchase and license agreement and fees from the collaboration agreement will contribute to the revenues and operating income of the Company's API and Rx Pharmaceutical businesses, respectively, in the second half of 2006 and beyond.
Outlook
Mr. Gibbons stated that, "Despite all of the ups and downs within our business segments, the outlook remains the same and we continue to anticipate full year operating earnings results of $0.74 - $0.78 per share. The prior guidance for reported earnings was $0.70 - $0.74 per share, which included the acquisition-related inventory step-up expense of $0.04 per share. Because of the gain on the Canadian distribution company sale, the reported earnings guidance increases to $0.74 - $0.78 per share.
"The Rx Pharmaceutical, API and Other business has exceeded expectations in the first half of the year. This business will also be strong in the second half with the completion of the supply agreement and the collaboration agreement with another pharmaceutical company, which will continue to contribute strongly through next year as well. R&D spending will increase significantly in the second half as we invest in our new product pipeline to ensure our future. The anticipated strong results from the Rx Pharmaceutical and API segments, although not quite as strong as in the first half, including the benefit of the noted agreements, will help offset projected weakness in the Consumer Healthcare segment in the second half.
"Our review of Consumer Healthcare operations and projections of current business trends indicate weaker sales and margins than originally planned, primarily related to launch delays and lower sales of new products. In addition, we expect a continuing negative impact from pseudoephedrine as we convert a large number of formulations to non-pseudoephedrine ingredients. This conversion has proven to be more complex and difficult than anticipated. It is clear that we will not overcome the negative impact of the new product and pseudoephedrine issues to the extent anticipated.
"While pseudoephedrine continues to be a difficult situation, Perrigo has been confronted with difficult outside influences in the past, and although larger and more complex, this one has some similarity to the PPA product withdrawal of November 2000. We worked our way through that situation and we will work through this one as well, targeting a rebound in our Consumer Healthcare business for next year," concluded Mr. Gibbons.
Perrigo will host a conference call to discuss fiscal 2006 second quarter results at 10 a.m. (ET) Thursday, Feb. 2. The call and replay will be available via webcast on the Company's Web site at http://www.perrigo.com/investor/, or by phone, at 800-473-6123, International, 973-339-3086. A taped replay of the call will be available beginning at approximately 2:30 p.m. (ET) Thursday, Feb. 2 until midnight Wednesday, Feb. 8. To listen to the replay, call 877-519-4471, International 973-341-3080, access code 6951125.
The Perrigo Company is a leading global healthcare supplier and the world's largest manufacturer of over-the-counter (OTC) pharmaceutical and nutritional products for the store brand market. Store brand products are sold by food, drug, mass merchandise, dollar store and club store retailers under their own labels. The Company also develops, manufactures and markets prescription generic drugs, active pharmaceutical ingredients and consumer products, and operates manufacturing facilities in the United States, Israel, United Kingdom, Mexico and Germany. Visit Perrigo on the Internet (http://www.perrigo.com/ ).
Note: Certain statements in this press release are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created thereby. These statements relate to future events or the Company's future financial performance and involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, performance or achievements of the Company or its industry to be materially different from those expressed or implied by any forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "intend," "believe," "estimate," "predict," "potential" or other comparable terminology. Please see the "Cautionary Note Regarding Forward-Looking Statements" on pages 33 - 41 of the Company's Form 10-K for the year ended June 25, 2005, as well as the Company's subsequent filings with the Securities and Exchange Commission, for a discussion of certain important factors that relate to forward-looking statements contained in this press release. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Unless otherwise required by applicable securities laws, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
PERRIGO COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
Second Quarter Year-to-Date
2006 2005 2006 2005
Net sales $359,697 $251,748 $679,431 $479,467
Cost of sales 254,127 184,692 486,945 347,698
Gross profit 105,570 67,056 192,486 131,769
Operating expenses
Distribution 6,953 3,905 14,103 8,098
Research and development 12,226 9,286 24,875 15,640
Selling and administration 47,082 29,716 93,470 57,256
Total 66,261 42,907 132,448 80,994
Operating income 39,309 24,149 60,038 50,775
Interest and other, net (675) (604) 2,105 (1,444)
Income before income taxes 39,984 24,753 57,933 52,219
Income tax expense 14,618 8,915 19,656 18,803
Net income $25,366 $15,838 $38,277 $33,416
Earnings per share
Basic $0.27 $0.22 $0.41 $0.47
Diluted $0.27 $0.22 $0.41 $0.46
Weighted average shares
outstanding
Basic 92,833 71,206 93,063 71,111
Diluted 93,963 73,285 94,167 73,166
Dividends declared per share $0.0425 $0.040 $0.0825 $0.075
PERRIGO COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 24, June 25, December 25,
2005 2005 2004
Assets (unaudited) (unaudited)
Current assets
Cash and cash equivalents $15,840 $16,707 $8,437
Investment securities 10,717 17,761 170,798
Accounts receivable 235,672 210,308 110,931
Inventories 262,855 272,980 166,615
Current deferred income taxes 52,140 55,987 32,242
Prepaid expenses and other current
assets 21,841 35,064 10,271
Total current assets 599,065 608,807 499,294
Property and equipment 594,802 586,306 468,718
Less accumulated depreciation 282,196 262,505 248,140
312,606 323,801 220,578
Restricted cash 400,000 400,000 -
Goodwill 150,067 150,293 35,919
Other intangible assets 141,079 147,967 8,467
Non-current deferred income taxes 36,130 26,964 7,899
Other non-current assets 45,129 47,144 14,259
$1,684,076 $1,704,976 $786,416
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $149,541 $142,789 $83,299
Notes payable 20,975 25,345 9,758
Payroll and related taxes 42,021 42,326 23,749
Accrued customer programs 50,775 41,666 15,365
Accrued liabilities 55,898 57,532 32,329
Accrued income taxes 11,539 21,225 6,705
Current deferred income taxes 13,727 9,659 3,079
Total current liabilities 344,476 340,542 174,284
Non-current liabilities
Long-term debt 634,956 656,128 -
Non-current deferred income taxes 64,182 74,379 29,631
Other non-current liabilities 34,807 43,090 7,499
Total non-current
liabilities 733,945 773,597 37,130
Shareholders' equity
Preferred stock, without par
value, 10,000 shares authorized - - -
Common stock, without par value,
200,000 shares authorized 518,459 527,748 112,703
Accumulated other comprehensive
income (loss) (8,645) (1,687) 4,523
Retained earnings 95,841 64,776 457,776
Total shareholders' equity 605,655 590,837 575,002
$1,684,076 $1,704,976 $786,416
Supplemental Disclosures of Balance
Sheet Information
Allowance for doubtful accounts $11,088 $10,370 $7,934
Allowance for inventory $44,201 $38,095 $23,846
Working capital $254,589 $268,265 $325,010
Preferred stock, shares issued - - -
Common stock, shares issued 93,104 93,903 71,555
PERRIGO COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Year-To-Date
2006 2005
Cash Flows (For) From Operating
Activities
Net income $38,277 $33,416
Adjustments to derive cash
flows
Depreciation and
amortization 26,753 15,514
Share-based compensation 4,741 2,827
Deferred income taxes (7,506) (2,967)
Sub-total 62,265 48,790
Changes in operating assets and
liabilities
Accounts receivable (23,845) (24,354)
Inventories 11,956 8,139
Accounts payable 5,480 (5,237)
Payroll and related taxes (580) (17,621)
Accrued customer programs 9,109 2,153
Accrued liabilities (3,133) 1,944
Accrued income taxes (12,811) 6,702
Other 6,797 938
Sub-total (7,027) (27,336)
Net cash from operating
activities 55,238 21,454
Cash Flows (For) From Investing
Activities
Purchase of securities (27,887) (76,815)
Proceeds from sales of
securities 34,586 69,890
Additions to property and
equipment (12,112) (7,564)
Acquisition of assets - (5,562)
Other - (2,478)
Net cash for investing
activities (5,413) (22,529)
Cash (For) From Financing
Activities
Borrowings (repayments) of
short-term debt, net (4,471) 395
Borrowings of long-term debt 15,000 -
Repayments of long-term debt (35,000) -
Tax effect of stock
transactions (635) 821
Issuance of common stock 3,006 5,161
Repurchase of common stock (16,401) (122)
Cash dividends (7,702) (5,334)
Net cash (for) from
financing activities (46,203) 921
Net increase (decrease) in
cash and cash equivalents 3,622 (154)
Cash and cash equivalents, at
beginning of period 16,707 8,392
Effect of exchange rate changes on
cash (4,489) 199
Cash and cash equivalents, at end
of period $15,840 $8,437
Supplemental Disclosures of Cash
Flow Information
Cash paid/received during the
period for:
Interest paid $17,680 $220
Interest received $10,614 $-
Income taxes paid $32,361 $11,941
Income taxes refunded $5,164 $4,066
Table I
PERRIGO COMPANY
SEGMENT INFORMATION
(in thousands)
(unaudited)
Second Quarter Year-To-Date
2006 2005 2006 2005
Segment Sales
Consumer Healthcare $272,220 $251,584 $500,853 $479,303
Rx Pharmaceuticals 28,645 164 57,739 164
API 26,863 - 53,654 -
Other 31,969 - 67,185 -
Total $359,697 $251,748 $679,431 $479,467
Segment Operating Income (Loss)
Consumer Healthcare $32,050 $26,499 $45,172 $54,424
Rx Pharmaceuticals 5,300 (2,350) 9,136 (3,649)
API 6,545 - 13,131 -
Other 379 - (280) -
Unallocated expenses (4,965) - (7,121) -
Total $39,309 $24,149 $60,038 $50,775
Table II
PERRIGO COMPANY
RECONCILIATION OF NON-GAAP MEASURES
(in thousands, except per share amounts)
(unaudited)
Second Quarter Year-To-Date
2006 2005 2006 2005
Net sales $359,697 $251,748 $679,431 $479,467
Reported gross profit $105,570 $67,056 $192,486 $131,769
Inventory step-up - - 4,762 -
Adjusted gross profit $105,570 $67,056 $197,248 $131,769
Adjusted gross profit % 29.4% 26.6% 29.0% 27.5%
Reported operating income $39,309 $24,149 $60,038 $50,775
Inventory step-up - - 4,762 -
Adjusted operating income $39,309 $24,149 $64,800 $50,775
Reported net income $25,366 $15,838 $38,277 $33,416
Inventory step-up (1) - - 3,714 -
Gain on sale of equity
investment (2) (2,939) - (2,939) -
Adjusted net income $22,427 $15,838 $39,052 $33,416
Diluted earnings per share
Reported $0.27 $0.22 $0.41 $0.46
Adjusted $0.24 $0.22 $0.41 $0.46
Diluted weighted average shares
outstanding 93,963 73,285 94,167 73,166
(1) Net of taxes at 22%.
(2) Net of taxes at 37%.
Table II (Continued)
REPORTABLE SEGMENTS
RECONCILIATION OF NON-GAAP MEASURES
(in thousands, except per share amounts)
(unaudited)
Second Quarter Year-To-Date
2006 2005 2006 2005
Consumer Healthcare
Net sales $272,220 $251,584 $500,853 $479,303
Reported gross profit $70,580 $67,138 $123,371 $131,851
Inventory step-up - - 318 -
Adjusted gross profit $70,580 $67,138 $123,689 $131,851
Adjusted gross profit % 25.9% 26.7% 24.7% 27.5%
Reported operating income $32,050 $26,499 $45,172 $54,424
Inventory step-up - - 318 -
Adjusted operating income $32,050 $26,499 $45,490 $54,424
API
Net sales $26,863 $- $53,654 $-
Reported gross profit $12,797 $- $24,801 $-
Inventory step-up - - 1,747 -
Adjusted gross profit $12,797 $- $26,548 $-
Adjusted gross profit % 47.6% 0.0% 49.5% 0.0%
Reported operating income $6,545 $- $13,131 $-
Inventory step-up - - 1,747 -
Adjusted operating income $6,545 $- $14,878 $-
Other
Net sales $31,969 $- $67,185 $-
Reported gross profit $10,601 $- $21,097 $-
Inventory step-up - - 2,697 -
Adjusted gross profit $10,601 $- $23,794 $-
Adjusted gross profit % 33.2% 0.0% 35.4% 0.0%
Reported operating income
(loss) $379 $- $(280) $-
Inventory step-up - - 2,697 -
Adjusted operating income $379 $- $2,417 $-
SOURCE: Perrigo Company
CONTACT: Ernest J. Schenk, Manager, Investor Relations and Communication
of Perrigo Company, +1-269-673-9212, E-mail: eschenk@perrigo.com
Web site: http://www.perrigo.com/