On August 18 before the market open, Perrigo (NASDAQ:PRGO) announced Q4 earnings of $0.29 per share or $27.5 million vs. $0.20 per share or $18.8 million a year ago (see conference call transcript). Excluding charges (impairment, improvement, restructuring, in-process R & D write off), PRGO reported $0.39 per share, missing analysts’ expectations of $0.41 per share.
However, revenue increased 34% to $500.2 million, up from $374.3 million, beating analyst revenue expectations of $476.3 million. PRGO opened at $35.11, spiked in the morning, followed by a sell off, and finally recovering to close at $35.98, up nearly 2%.
The leading unit, by far, was Consumer Healthcare. The unit reported sales of $375 million up 46%, compared to $275 million a year ago. Sales were boosted by $75 million in new product revenue from its Omeprazole (a proton-pump inhibitor - treats gastro-intestinal conditions) and Cetirizine (an antihistamine) drugs. Operating income was $52.1 million, up from $13.8 million a year ago.
The Israel Consumer Products, Israel Pharmaceutical and Diagnostic Products units collectively earned $48.8 million, up 24% or $39.3 million from a year ago. Operating income was $2.1 million, up from $1.1 million a year ago.
The API unit reported $38.3 million, up from $33.6 million or 14% a year ago. However, operating income was $3.8 million, down 11% or $4.2 million from a year ago.
The lagging unit was the Pharmaceuticals unit, which reported sales of $38.4 million, down from $44.1 million or 13% a year ago. The operating loss was due to a $10.3 million intangible write-off.
There has been an inflow of investor capital in the healthcare and pharmaceuticals industries due to their recession-proof characteristics as evidenced by their recent performance during difficult economic condition.
Although PRGO’s debt ratio remains at 84.3 vs. 51.6 for the industry, the company should be able to withstand weakness in the US economy. I expect the industries to expand margins faster than most other industries and their long-term outlook supported by the continual change in the demographics for persons aged 55 and older. Seniors account for 1/3 of sales in the overall industry.
As the industry, as a whole, faces more competition from generics, PRGN will benefit greatly as they are the world’s largest producer, manufacturer, and distributor of over-the-counter drugs for the generic market. PRGO currently operates from the US, Israel, England, Mexico, Germany, China, and India, giving PRGN a truly global presence.
Currently, there are 6 analysts that publish recommendations. 3 analysts have issued “Buy” ratings and 3 have issued “Hold” ratings. On August 19, Credit Suisse reiterated their “Neutral” rating but raised their price target by $1 to $39.
In the past 12 months, insiders purchased 0 shares and sold 1.46 million shares. In the past 6 months, insiders purchased 0 shares and sold 1.12 million shares. The majority of the sales were executed by David Gibbons, the eldest director serving on the board who also retired in March 2007. Therefore, I believe the sales are not fundamentally driven or business related. 712 institutions own 86.4% of shares outstanding vs. 36.7% for the Biotech & Drugs industry and 71.6% for the S & P 500. In addition, short interest has rapidly declined from 10.2% in May to 5.9% in July.
For fiscal 2008, PRGO earned $1.43 per share or $135 million on $1.82 billion in revenue, up from $0.79 per share or $73.8 million on $1.45 billion a year ago. Remember that in May, PRGO expected results to come in between $1.55 - $1.60. PRGO expects fiscal 2009 earnings to come in around $1.90 - $1.98 per share. According to management, this is dependent upon 13-18% revenue growth, 12-14% operating margins, 28% tax-rate, $210-$240 million in operational cash, and investment in R & D continuing at a constant pace at 4% of sales.
Technically, PRGO tested the 200-day MA and may stall in this congestion area for some time. The breakaway gap in May is threatening to break the long-term trend. Any major failures of the 200-day MA will result in a short-term downtrend and a break above 37 on strong volume will indicate a continuation of the uptrend. The next few days will likely determine the outcome.
Short & Intermediate-Term: 8 months
Long-Term: 2 years