Perrigo Reports Third Quarter Fiscal Year 2023 Financial Results From Continuing Operations

• Year-to-date 2023 net sales were $3.5 billion, an increase of 6.1% versus the prior year period. Organic net sales increased 2.4%, including -1.9 percentage points from purposeful SKU prioritization actions and the HRA distributor transitions.
• CSCI year-to-date net sales of $1.3 billion grew 12.7% versus the prior year period, with organic growth of 8.6%. CSCA year-to-date net sales of $2.2 billion grew 2.7% compared to the prior year period, while organic net sales decreased 1.0%, including -2.6 percentage points from purposeful SKU prioritization actions.
• Year-to-date GAAP ("reported") gross margin was 35.8%, a 330 basis points improvement compared to the prior year period. Non-GAAP ("adjusted") gross margin was 38.5%, a 300 basis points improvement compared to the prior year period.
• Year-to-date reported EPS was $0.17, as compared to a loss of $(0.88) in the prior year period.
• Year-to-date adjusted diluted EPS was $1.72, as compared to $1.32 in the prior year period, an increase of 30.3%. Adjusted diluted EPS included an unfavorable impact of $0.14 from the HRA distributor transition as part of the integration plan to capture synergies.

/PRNewswire/ -- Perrigo Company plc (NYSE: PRGO) ("Perrigo" or the "Company"), a leading provider of Consumer Self-Care Products, today announced financial results from continuing operations for the third quarter ended September 30, 2023. All comparisons are against the prior year fiscal third quarter, unless otherwise noted.

President and CEO, Patrick Lockwood-Taylor commented, "I have immersed myself in all facets of our global business since becoming CEO four months ago and remain excited about our opportunities ahead. We have created a 'One Perrigo' blueprint that will guide us to build an operating model where our portfolio, operating systems and behaviors will be simplified, standardized and scaled. This will position us to win in self-care through the creation of a sustainable and value accretive growth engine that will drive Perrigo for the long-term."

Lockwood-Taylor concluded, "The Perrigo team delivered third quarter double-digit gross profit, operating income and EPS growth year-over-year led by strong business fundamentals across the global portfolio, which more than offset continued volatility in infant formula. While we have updated our expectations for infant formula and the adverse impact from currency translation, the strength of our diversified portfolio, greater than originally anticipated margin expansion and a lower expected adjusted tax rate allows us to maintain the mid-to-lower end of our original 2023 EPS guidance range."

Refer to Tables I through VIII at the end of this press release for a reconciliation of non-GAAP adjustments to the current year and prior year periods and additional non-GAAP information. The Company's reported results are included in the attached Consolidated Statements of Operations, Balance Sheets and Statements of Cash Flows.

Third Quarter Perrigo 2023 Results from Continuing Operations

Reported net sales of $1.1 billion increased $24 million, or 2.2%, driven primarily by 1) +2.5 percentage points from the acquisition of the Gateway infant formula facility and the U.S. and Canadian Good Start^® infant formula brand ("Gateway"), and 2) +2.1 percentage points from foreign currency translation. This growth was partially offset by a decrease in organic net sales of 1.2%  including a -2.8 percentage points impact from SKU prioritization actions and the HRA distributor transitions.

Organic net sales were driven primarily by strategic pricing actions of +4.7 percentage points and new products sales. This growth was more than offset by 1) -2.3 percentage points from purposeful SKU prioritization actions, 2) lower net sales in legacy U.S. Nutrition due primarily to lower manufacturing productivity stemming from the U.S. Food and Drug Administration's ("FDA") evolving industry guidelines on infant formula manufacturing, and 3) -0.5 percentage points related to HRA distributor transitions as part of the integration plan to capture synergies.

Reported gross margin was 36.6%, a 360 basis points increase versus the prior year quarter. Adjusted gross margin expanded 300 basis points to 39.5% driven by strategic pricing actions, benefits from purposeful SKU prioritization actions and higher margin new products. These positive initiatives were partially offset by higher cost of goods sold inflation in CSCI and lower manufacturing productivity in U.S. Nutrition. These same factors drove gross profit growth versus the prior year quarter.  

Reported operating income was $62 million compared to $33 million in the prior year period. Adjusted operating income grew $17 million, or 13.0%, to $150 million driven by gross profit flow-through described above, in addition to favorable currency translation and lower distribution expenses. These benefits were partially offset by higher operating expenses, driven primarily by the addition of Gateway.

Reported net income was $15 million, or $0.11 per diluted share, compared to a reported net loss of $52 million, or ($0.39) per diluted share, in the prior year. Excluding certain charges as outlined in Table I, third quarter 2023 adjusted net income was $87 million, or $0.64 per diluted share, compared to $76 million, or $0.56 per diluted share, in the prior year. Third quarter adjusted EPS included an unfavorable impact of $0.03 due to the HRA distributor transitions.

Third Quarter 2023 Business Segment Results from Continuing Operations

Consumer Self-Care Americas Segment

CSCA reported net sales of $704 million decreased 2.6%, including +3.8 percentage points from the addition of Gateway. Organic net sales decreased 5.1% as strategic pricing actions and new product sales were more than offset by 1) -3.6 percentage points due to purposeful SKU prioritization actions to enhance margins as part of the Company's Supply Chain Reinvention Program, 2) lower net sales in legacy U.S. Nutrition due primarily to lower manufacturing productivity, and 3) lower net sales of branded OTC products. Primary category drivers are provided below.

Nutrition
Net sales of $131 million increased 5.1% due primarily to the Gateway acquisition. This benefit was partially offset by lower net sales in legacy infant formula due to lower manufacturing productivity stemming from the FDA's evolving industry guidelines on infant formula manufacturing and exited product lines.

Upper Respiratory
Net sales of $130 million decreased 1.5% due primarily to the launch and channel fill of Nasonex^® in the prior year quarter and exited product lines, partially offset by higher net sales of cough cold products, led by store brand Guaifenesin-based offerings, and the new product launch of store brand Cough Relief Liquid Honey.    

Digestive Health
Net sales of $117 million decreased 2.1% due primarily to lower net sales of store brand Proton Pump Inhibitors, partially offset by higher net sales of store brand laxatives, including Polyethylene Glycol 3350 Orange. 

Pain & Sleep-Aids
Net sales of $94 million decreased 9.5% due primarily to purposeful SKU prioritization actions in adult analgesic offerings to focus capacity on higher margin products, partially offset by sales of new products, including store brand Dual Action Acetaminophen 250mg and Ibuprofen 125mg Tablets, and higher demand for children's analgesics products.   

Healthy Lifestyle
Net sales of $79 million increased 7.6% due primarily to higher volumes and market share gains in smoking cessation products.

Oral Care
Net sales of $77 million decreased 8.5% due primarily to purposeful SKU prioritization actions and timing of promotions compared to the prior year quarter, partially offset by higher net sales of store brand teeth whitening products and power toothbrush handles.

Skin Care
Net sales of $48 million decreased 2.7% due primarily to exited product lines, partially offset by strong performance of Mederma^®.

Women's Health
Net sales of $10 million decreased 17.7% due primarily to purposeful SKU prioritization actions in feminine hygiene.

Vitamins, Minerals, and Supplements ("VMS") and Other
Net sales of $18 million decreased 24.4% due primarily to purposeful SKU prioritization actions.

Reported gross margin was 31.8%, a 550 basis points increase versus the prior year quarter. Adjusted gross margin expanded 430 basis points to 32.5% driven by 1) strategic pricing actions, 2) productivity savings in U.S. OTC and U.S. Oral Care, 3) benefits from SKU prioritization actions and exited product lines, and 4) the addition of the higher margin Gateway acquisition. These benefits were partially offset by lower manufacturing productivity in U.S. Nutrition.

Reported operating income was $91 million compared to $75 million in the prior year quarter. Adjusted operating income increased $4 million, or 3.5%, to $108 million driven by gross profit flow-through resulting from strategic pricing actions, productivity savings in U.S. OTC and U.S. Oral Care, and the addition of Gateway. These benefits were partially offset by higher operating expenses, driven primarily by the addition of operating expenses related to Gateway, lower manufacturing productivity in U.S. Nutrition and Opill^® pre-launch investments.

Consumer Self-Care International Segment

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