Perrigo today announced financial results for the first quarter ended April 2, 2022. All comparisons are against the prior year fiscal first quarter, unless otherwise noted.

President and CEO, Murray S. Kessler commented, “We delivered another quarter of very strong organic net sales growth as consumer demand driven sales again strengthened sequentially. The categories in which we compete are growing and remain on-trend, and the products in our portfolio that were most disrupted by the pandemic, including cough/cold, have rebounded. The strong performance of our U.S. infant formula business, which benefited from innovation and availability while a competitor experienced quality issues, was also notable.”

Kessler continued, “First quarter earnings were in-line with our expectations, despite significant and increasing cost headwinds and a significantly strengthening U.S. dollar. We now expect full year 2022 cost headwinds to increase by approximately $125 million versus prior year as compared to our original expectation of an increase of $80 million. While price increases and procurement actions are expected to offset inflation for the full year, adverse foreign exchange rate movements and to a lesser extent business disruption in Ukraine and Russia are likely to remain. With the addition of HRA Pharma and higher expectations for organic net sales growth, we expect to more than offset these headwinds and have raised our net sales and adjusted EPS guidance for the year.”

Kessler concluded, “With our consumer self-care transformation complete, our focus going forward will be to ‘Optimize and Accelerate’ through gross margin enhancement via supply chain reinvention, pricing actions and portfolio consolidation, the successful integration of HRA and by continually improving our organization and culture. The path ahead is clear and we remain on track to deliver significant profitable growth over the next few years.”

First Quarter 2022 Perrigo Results from Continuing Operations

Perrigo net sales for the first quarter were $1.1 billion, an increase of $65 million, or 6.4%. Organic net sales grew 9.7%.

Net sales were driven by 1) higher incidences of cough/cold and flu-like illnesses globally, leading to an increase of $49 million in cough/cold sales that benefited the Upper Respiratory and Pain and Sleep Aids categories, 2) strong growth in U.S. Nutrition stemming from store brand infant formula share gains and a competitor recall, 3) the addition of $33 million in contract manufacturing sales to the divested RX business, 4) higher net sales in the CSCI Skincare and Personal Hygiene category, and 5) increased pricing across both Consumer Self-Care segments. These drivers also benefited from new product sales and e-commerce growth. These increases were partially offset by 1) lower net sales in the global Healthy Lifestyle and CSCI VMS categories, 2) unfavorable currency exchange rate movements of $34 million, and lower sales in Ukraine and Russia.

First quarter reported operating income was $22 million in 2022, compared to $51 million in 2021. Adjusted operating income decreased $32 million, or 26.8%, to $87 million in 2022 driven by 1) $34 million in cost headwinds, including cost of goods sold inflation, carry over of unfavorable plant absorption in 2021 and increased freight expenses, 2) higher customer service claims related to unfulfilled customer orders due to unusual ordering patterns during the quarter in CSCA, 3) higher planned advertising and promotion investments to support brand growth, 4) lower profitability in contract manufacturing sales to the divested RX business compared to the prior year, and 5) the impact from lower sales in Ukraine and Russia. These factors were partially offset by higher gross profit flow-through resulting from higher volumes and pricing.

Reported net loss was $1.3 million, or $0.01 per diluted share, compared to reported net income of $2.8 million, or $0.02 per diluted share in the prior year period. Excluding certain charges as outlined in Table I, first quarter 2022 adjusted net income was $45 million, or $0.33 per diluted share, compared to $67 million, or $0.50 per diluted share, last year. Currency-neutral EPS for the quarter was $0.37, including a $0.02 per share negative impact from the war in Ukraine.

First Quarter 2022 Business Segment Results from Continuing Operations

Consumer Self-Care Americas Segment

CSCA first quarter net sales of $710 million increased $70 million, or 10.9%. Primary category drivers are provided below.

Upper Respiratory
Net sales of $153 million increased 28.8% due primarily to higher incidences of cough/cold and flu-like illnesses that led to strong demand for cough/cold products, particularly store brand liquid-based cough/cold offerings, and demand for oral allergy products.

Digestive Health
Net sales of $119 million increased 0.2% as growth in e-commerce was offset by temporary packaging constraints on a specific product, which is expected to alleviate during the second half of 2022, and lower category consumption of proton pump inhibitors compared to the prior year.

Pain & Sleep-Aids
Net sales of $103 million increased 8.2% due primarily to strong demand for children’s analgesics products stemming from higher incidences of cough/cold and flu-like illnesses, partially offset by higher demand for certain premium dosage forms where the Company today does not provide a store brand offering.

Nutrition
Net sales of $127 million increased 38.0% due primarily to strong growth in U.S. store brand infant formula stemming from share gains and a competitor recall, new product launches within infant formula and continued growth in the oral electrolytes business.

Oral Care
Net sales of $70 million decreased 6.1% due primarily to delayed receipt of products manufactured outside the U.S., leading to unfulfilled customer orders.

Healthy Lifestyle
Net sales of $68 million decreased 11.1% due primarily to the discontinuation of diabetes products and lower category consumption and share of certain smoking cessation products.

Skincare & Personal Hygiene
Net sales of $49 million decreased 12.3% due primarily to service challenges related to the now divested Scaraway^(R) brand and discontinued product in non-strategic category segments.

Vitamins, Minerals, and Supplements (“VMS”) and Other
Net sales of $21 million increased 132.6% due primarily to contract manufacturing sales to the divested RX business.

Reported operating income was $79 million in the quarter compared to $96 million in 2021. Adjusted operating income decreased $23 million to $87 million driven primarily by 1) cost headwinds, including cost of goods sold inflation, carry over of unfavorable plant absorption in 2021 and increased freight expenses, 2) higher customer service claims related to unfulfilled customer orders due to unusual ordering patterns during the quarter in CSCA, and 3) lower profitability in contract manufacturing sales to the divested RX business compared to the prior year. These factors were partially offset by higher gross profit flow-through resulting from net sales growth and lower operating expenses.

Consumer Self-Care International Segment

CSCI net sales of $365 million decreased $5 million, or 1.4%, including a negative impact of 9.1 percentage points from unfavorable currency exchange rate movements. Organic net sales growth was a strong 7.7%. Primary category drivers are provided below.

Skincare & Personal Hygiene
Net sales of $102 million decreased 4.8%, or an increase of 4.9% excluding the impact of currency, driven primarily by increased net sales of the anti-parasite brand Paranix, due to the easing of COVID-19-related restrictions, and strong performances and new product launches in the ACO and Sebamed skincare lines.

Upper Respiratory
Net sales of $61 million increased 43.1%, or 56.6% excluding the impact of currency, as the higher incidences of cough/cold and flu-like illnesses led to strong demand for cough/cold products, including Bronchonolo, Coldrex, Phytosun, Physiomer and U.K. store brands. New products also contributed to growth in the quarter.

VMS
Net sales of $48 million decreased 18.8%, or 10.5% excluding the impact of currency, due primarily to lower category consumption and the lingering impact from the third quarter 2021 recall of certain batches of Davitamon and Abtei.

Pain & Sleep-Aids
Net sales of $52 million increased 5.5%, or 13.5% excluding the impact of currency, due primarily to an increase in U.K. store brand consumption and higher demand for Solpadeine, a paracetamol-based analgesics product.

Healthy Lifestyle
Net sales of $43 million decreased 15.1%, or 7.6% excluding the impact of currency, due primarily to lower net sales in the XLS Medical weight management franchise stemming from lower category consumption and timing of NiQuitin smoking cessation product sales to customers.

Oral Care
Net sales of $24 million decreased 4.3% or an increase of 5.5% excluding the impact of currency, due primarily to customer restocking following supply constraints in the prior year.

Digestive Health and Other
Net sales of $35 million decreased 3.6%, or an increase of 3.1% excluding the impact of currency, due primarily to higher sales of distribution brands.

Reported operating income was $16 million in the quarter compared to $17 million in the prior year quarter. Adjusted operating income decreased $7 million, or 12.1%, to $53 million as higher gross profit flow-through resulting from net sales growth was more than offset by higher planned advertising & promotion investments to support brand growth and unfavorable currency exchange rate movements. Excluding the impact of currency, adjusted operating income was flat compared to the prior year quarter.

Updated Fiscal 2022 Outlook

Based on current foreign exchange rates, the Company is raising its fiscal 2022 growth range outlook from 3.5%-4.5% to 8.5%-9.5% versus the prior fiscal year, primarily due to the acquisition of HRA, which closed on April 29, 2022. The Company is also raising its fiscal 2022 organic growth range outlook from 7%-8% to 8%-9%.

The Company is raising its adjusted diluted EPS range from $2.10–$2.30 to $2.30–$2.40, reflecting approximately $0.35 from the HRA acquisition, partially offset by approximately $0.10 from additional unfavorable exchange rate movements, $0.05 from stopping distribution of product to Russia, and approximately $0.05 in higher interest expense from refinancing.

The Company continues to expect first half margin compression and second half margin expansion and an adjusted effective tax rate of approximately 23%. Cash flow from operations as a percentage of adjusted net income is now expected to be above the Company’s original range of 95%-105%.

The Company cannot reconcile its expected adjusted diluted earnings per share to diluted earnings per share under “Fiscal 2022 Outlook” without unreasonable effort because certain items that impact net income and other reconciling metrics are out of the Company’s control and/or cannot be reasonably predicted at this time.