The Perrigo Company (NASDAQ: PRGO)(TASE: PRGO) today announced results for the second quarter of fiscal year 2007 ended December 30, 2006.
Perrigo Company
(in thousands, except per share amounts)
Second Quarter Six Months
2007 2006 2007 2006
Sales $370,629 $359,697 $710,844 $679,431
Net Income $21,088 $25,366 $37,970 $38,277
Diluted EPS $0.23 $0.27 $0.41 $0.41
Diluted Shares 93,506 93,963 93,595 94,167
Second Quarter Results
Sales for the second quarter of fiscal 2007 were $370.6 million, an increase of three percent from $359.7 million last year. Net income was $21.1 million, or $0.23 per share, and included costs for a product recall of $3.2 million after-tax, or $0.03 per share. In the second quarter last year, net income was $25.4 million, or $0.27 per share, and included a gain on the sale of the Company's interest in a Canadian distribution company of $2.9 million after-tax, or $0.03 per share. Excluding this transaction, adjusted net income last year was $22.4 million, or $0.24 per share. A reconciliation of non-GAAP measures is shown in Table II at the end of this press release.
Commenting on the second quarter, Joseph C. Papa, Perrigo's President and Chief Executive Officer said, "I am pleased with the continued success of our new product launches this year, led by those in our Smoking Cessation category. While Perrigo had another strong new product quarter, our results reflect the impact of the November 2006 Acetaminophen recall and the lower than anticipated sales of cough/cold and pain reliever products in the Consumer Healthcare business. The weak demand for our key products corresponds to the mild cold and flu season experienced through December. This is similar to what we've seen the past two cough/cold seasons."
Six Months Results
Sales for the first six months ended December 30, 2006 were $710.8 million, an increase of five percent compared with $679.4 million last year. Net income was $38.0 million, or $0.41 per share, which included expenses for a product recall of $3.9 million after-tax, or $0.04 per share.
In the first six months last fiscal year, net income was $38.3 million, or $0.41 per share. Excluding an acquisition-related write-off of the step-up in the value of inventory acquired in the first quarter last year ($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 last year, 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.
The effective tax rate for the six months year to date was 18.4%, down from 33.9% last year. This lower rate was a result of the higher proportion of income from non-US businesses versus last year, international tax planning and the retroactive renewal of the research and development tax credit that was part of the Tax Relief and Healthcare Act enacted into law this quarter.
Consumer Healthcare
Consumer Healthcare segment sales in the quarter were $275.9 million, compared with $270.2 million in the second quarter last year. These results included $19.5 million in new product sales, led by the recently launched coated mint nicotine gum and nicotine lozenge products, offset by a decline in cough/cold and pain relief products. Operating income was $17.4 million, compared with $31.4 million a year ago, reflecting lower cough/cold and analgesics category sales and expenses for a product recall.
For the first six months of fiscal 2007, Consumer Healthcare sales were $517.8 million, compared with $497.3 million in the first six months last fiscal year. These results included $26.8 million in new product sales, offset by a decline in cough and cold category product sales. Operating income was $34.5 million, compared with $44.8 million a year ago.
On November 9, 2006, Perrigo announced that it had initiated a voluntary, nationwide product recall to the retail level of certain lots of its store brand Acetaminophen 500 mg caplets. At that time, the Company estimated the cost to pull back product from the retailers' warehouses and shelves to be $2.9 million pre-tax. The scope of the recall grew subsequent to that announcement as the Company proactively addressed consumers' inquiries. The Company now estimates that the total cost of the recall, including consumer level returns and refunds will be $6.0 million pre-tax, $3.9 million after- tax, or $0.04 per share. Discussions continue with the raw material supplier to determine the extent to which the recall-related materials costs may be recoverable.
Rx Pharmaceuticals
The Rx Pharmaceuticals segment reported sales of $28.3 million in the quarter, including $6.2 million of service and royalty revenue, compared with $28.6 million a year ago. Operating income was $3.7 million, compared with $5.3 million last year, primarily as a result of increased investment for research and development.
For the first six months of fiscal 2007, sales were $59.7 million and operating income was $9.5 million. For the same period last year, 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.
API
Second quarter sales in the API segment were $28.6 million, compared with $26.9 million a year ago. Operating income was $5.9 million, compared with $6.5 million last year and reflects a significant increase in research and development investments. For the first six months, sales were $58.4 million, compared with $53.7 million a year ago, and operating income was $10.6 million, compared with $13.1 million last year. Excluding a $1.7 million first quarter write-off of the step-up in the value of inventory acquired, operating income for the first six months last year was $14.9 million.
Other
The Other category, consisting of the Israel Consumer Products and Israel Pharmaceutical and Diagnostic Products segments, reported sales for the second quarter of fiscal 2007 of $37.8 million, up 11 percent from $34.0 million a year ago. Operating income was $3.0 million compared with $1.0 million last year. Sales for the first six months were $75.0 million, up six percent from $70.7 million last year, and operating income was $5.6 million, compared with $0.1 million last year. Excluding a $2.7 million first quarter write-off of the step-up in the value of inventory acquired, the Other category recorded operating income of $2.8 million for the first six months last year.
Outlook
The Company anticipates earnings for the full fiscal year in the range of $0.86 to $0.91 per share, excluding $0.01 per share of restructuring costs. The Company expects its full-year tax rate to be in the range of 20 to 23 percent, down from the previous estimate of 30 to 32 percent, as a result of a change in the worldwide income mix and tax planning measures.
Mr. Papa stated, "We will focus closely on monitoring production levels and costs in the second half of the fiscal year. While some of the issues this quarter are one time events, such as the Acetaminophen recall, our focus on quality investments and the reduction of production costs will lead us in a return to historical gross margin levels."
"We will maintain our increased investments in research and development as previously planned. Our long-term outlook continues to be positive as we focus on bringing important new products to market while we deliver value to our customers and their consumers."
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, the United Kingdom, Mexico, Germany and China. 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 page 1 of the Company's Form 10-K for the year ended July 1, 2006, 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
2007 2006 2007 2006
Net sales $370,629 $359,697 $710,844 $679,431
Cost of sales 272,304 254,127 517,902 486,945
Gross profit 98,325 105,570 192,942 192,486
Operating expenses
Distribution 7,155 6,953 14,539 14,103
Research and development 14,902 12,226 27,949 24,875
Selling and administration 49,239 47,082 97,713 93,470
Restructuring 642 - 642 -
Total 71,938 66,261 140,843 132,448
Operating income 26,387 39,309 52,099 60,038
Interest, net 3,300 5,116 7,886 9,142
Other income, net (2,258) (5,791) (2,319) (7,037)
Income before income taxes 25,345 39,984 46,532 57,933
Income tax expense 4,257 14,618 8,562 19,656
Net income $21,088 $25,366 $37,970 $38,277
Earnings per share
Basic $0.23 $0.27 $0.41 $0.41
Diluted $0.23 $0.27 $0.41 $0.41
Weighted average shares
outstanding
Basic 91,836 92,833 92,104 93,063
Diluted 93,506 93,963 93,595 94,167
Dividends declared per share $0.0450 $0.0425 $0.0875 $0.0825
PERRIGO COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 30, July 1, December 24,
2006 2006 2005
Assets (unaudited) (unaudited)
Current assets
Cash and cash equivalents $39,635 $19,018 $15,840
Investment securities 34,030 26,733 10,717
Accounts receivable 246,603 240,130 235,672
Inventories 322,624 302,941 262,855
Current deferred income taxes 50,358 52,058 52,140
Prepaid expenses and other current
assets 24,515 16,298 21,841
Total current assets 717,765 657,178 599,065
Property and equipment 629,325 606,907 594,802
Less accumulated depreciation 308,999 287,549 282,196
320,326 319,358 312,606
Restricted cash 400,000 400,000 400,000
Goodwill 188,272 152,183 150,067
Other intangible assets 134,187 132,426 141,079
Non-current deferred income taxes 46,039 43,143 36,130
Other non-current assets 47,474 46,336 45,129
$1,854,063 $1,750,624 $1,684,076
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $173,008 $179,740 $149,541
Notes payable 18,333 20,081 20,975
Payroll and related taxes 41,049 54,153 42,021
Accrued customer programs 45,436 49,534 50,775
Accrued liabilities 44,328 45,335 55,898
Accrued income taxes 23,311 14,132 11,539
Current deferred income taxes 6,193 8,456 13,727
Total current liabilities 351,658 371,431 344,476
Non-current liabilities
Long-term debt 668,784 621,717 634,956
Non-current deferred income taxes 106,702 81,923 64,182
Other non-current liabilities 34,646 34,809 34,807
Total non-current
liabilities 810,132 738,449 733,945
Shareholders' equity
Preferred stock, without par value,
10,000 shares authorized - - -
Common stock, without par value,
200,000 shares authorized 509,910 516,098 518,459
Accumulated other comprehensive
income (loss) 31,456 3,593 (8,645)
Retained earnings 150,907 121,053 95,841
Total shareholders' equity 692,273 640,744 605,655
$1,854,063 $1,750,624 $1,684,076
Supplemental Disclosures of Balance
Sheet Information
Allowance for doubtful accounts $12,198 $11,178 $11,088
Allowance for inventory $39,098 $42,509 $44,201
Working capital $366,107 $285,747 $254,589
Preferred stock, shares issued - - -
Common stock, shares issued 92,666 92,922 93,104
PERRIGO COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Year-To-Date
2007 2006
Cash Flows (For) From Operating
Activities
Net income $37,970 $38,277
Adjustments to derive cash
flows
Depreciation and
amortization 27,681 26,753
Share-based compensation 5,718 4,741
Deferred income taxes (4,248) (7,506)
Sub-total 67,121 62,265
Changes in operating assets and
liabilities
Accounts receivable (9,295) (23,845)
Inventories (22,919) 11,956
Accounts payable (4,034) 5,480
Payroll and related taxes (12,658) (580)
Accrued customer programs (4,098) 9,109
Accrued liabilities (937) (3,133)
Accrued income taxes 9,480 (12,811)
Other (5,025) 6,797
Sub-total (49,486) (7,027)
Net cash from operating
activities 17,635 55,238
Cash Flows (For) From Investing
Activities
Purchase of securities (117,746) (27,887)
Proceeds from sales of
securities 111,665 34,586
Additions to property and
equipment (19,784) (12,112)
Proceeds from sales of property
and equipment 2,613 -
Net cash for investing
activities (23,252) (5,413)
Cash (For) From Financing
Activities
Repayments of short-term debt,
net (1,699) (4,471)
Borrowings of long-term debt 60,000 15,000
Repayments of long-term debt (15,000) (35,000)
Tax effect of stock
transactions (59) (635)
Issuance of common stock 3,700 3,006
Repurchase of common stock (15,547) (16,401)
Cash dividends (8,116) (7,702)
Net cash (for) from
financing activities 23,279 (46,203)
Net increase in cash and
cash equivalents 17,662 3,622
Cash and cash equivalents, at
beginning of period 19,018 16,707
Effect of exchange rate changes on
cash 2,955 (4,489)
Cash and cash equivalents, at end
of period $39,635 $15,840
Supplemental Disclosures of Cash
Flow Information
Cash paid/received during the
period for:
Interest paid $17,062 $17,680
Interest received $9,831 $10,614
Income taxes paid $6,727 $32,361
Income taxes refunded $1,369 $5,164
Table I
PERRIGO COMPANY
SEGMENT INFORMATION
(in thousands)
(unaudited)
Second Quarter Fiscal Year
2007 2006 2007 2006
Segment Sales
Consumer Healthcare $275,947 $270,222 $517,756 $497,322
Rx Pharmaceuticals 28,260 28,645 59,685 57,739
API 28,633 26,863 58,412 53,654
Other 37,789 33,967 74,991 70,716
Total $370,629 $359,697 $710,844 $679,431
Segment Operating Income (Loss)
Consumer Healthcare $17,420 $31,436 $34,520 $44,762
Rx Pharmaceuticals 3,686 5,300 9,473 9,136
API 5,929 6,545 10,587 13,131
Other 2,976 994 5,640 130
Unallocated expenses (3,624) (4,966) (8,121) (7,121)
Total $26,387 $39,309 $52,099 $60,038
Table II
PERRIGO COMPANY
RECONCILIATION OF NON-GAAP MEASURES
(in thousands, except per share amounts)
(unaudited)
Second Quarter Fiscal Year
2007 2006 2007 2006
Net sales $370,629 $359,697 $710,844 $679,431
Reported gross profit $98,325 $105,570 $192,942 $192,486
Inventory step-up - - - 4,762
Adjusted gross profit $98,325 $105,570 $192,942 $197,248
Adjusted gross profit % 26.5% 29.3% 27.1% 29.0%
Reported operating income $26,387 $39,309 $52,099 $60,038
Inventory step-up - - - 4,762
Restructuring 642 - 642 -
Adjusted operating income $27,029 $39,309 $52,741 $64,800
Reported net income $21,088 $25,366 $37,970 $38,277
Inventory step-up (1) - - - 3,714
Restructuring (2) 417 - 417 -
Gain on sale of equity
investment (3) - (2,939) - (2,939)
Adjusted net income $21,505 $22,427 $38,387 $39,052
Diluted earnings per share
Reported $0.23 $0.27 $0.41 $0.41
Adjusted $0.23 $0.24 $0.41 $0.41
Diluted weighted average shares
outstanding 93,506 93,963 93,595 94,167
(1) Net of taxes at 22%
(2) Net of taxes at 35%
(3) Net of taxes at 37%
Table II (Continued)
REPORTABLE SEGMENTS
RECONCILIATION OF NON-GAAP MEASURES
(in thousands, except per share amounts)
(unaudited)
Second Quarter Fiscal Year
2007 2006 2007 2006
Consumer Healthcare
Net sales $275,947 $270,222 $517,756 $497,322
Reported gross profit $59,346 $69,729 $115,547 $122,373
Inventory step-up - - - 318
Adjusted gross profit $59,346 $69,729 $115,547 $122,691
Adjusted gross profit % 21.5% 25.8% 22.3% 24.7%
Reported operating income $17,420 $31,436 $34,520 $44,762
Inventory step-up - - - 318
Restructuring 642 - 642 -
Adjusted operating income $18,062 $31,436 $35,162 $45,080
API
Net sales $28,633 $26,863 $58,412 $53,654
Reported gross profit $14,085 $12,797 $25,964 $24,801
Inventory step-up - - - 1,747
Adjusted gross profit $14,085 $12,797 $25,964 $26,548
Adjusted gross profit % 49.2% 47.6% 44.4% 49.5%
Reported operating income $5,929 $6,545 $10,587 $13,131
Inventory step-up - - - 1,747
Adjusted operating income $5,929 $6,545 $10,587 $14,878
Other
Net sales $37,789 $33,967 $74,991 $70,716
Reported gross profit $13,507 $11,452 $26,257 $22,095
Inventory step-up - - - 2,697
Adjusted gross profit $13,507 $11,452 $26,257 $24,792
Adjusted gross profit % 35.7% 33.7% 35.0% 35.1%
Reported operating income
(loss) $2,976 $994 $5,640 $130
Inventory step-up - - - 2,697
Adjusted operating income $2,976 $994 $5,640 $2,827
First Call Analyst:
FCMN Contact: pblain@perrigo.com
SOURCE: Perrigo Company
CONTACT: Arthur J. Shannon, Vice President, Investor Relations and
Communication, +1-269-686-1709, E-mail: ajshannon@perrigo.com, or Ernest J.
Schenk, Manager, Investor Relations and Communication, +1-269-673-9212, E-
mail: eschenk@perrigo.com, both of Perrigo Company
Web site: http://www.perrigo.com/