On August 2, 2024, Perrigo Co PLC (PRGO, Financial) released its 8-K filing for the second quarter of 2024. Perrigo, a leading consumer health company, reported a challenging quarter with net sales and earnings impacted by lower seasonal demand and issues in the infant formula segment.
Company Overview
Perrigo is one of the largest consumer health companies globally, focusing on consumer self-care since 2018 after divesting its animal health and generic pharmaceuticals businesses. In North America, which accounts for two-thirds of its total sales, Perrigo's product mix includes private-label consumer health goods sold to major retailers like Walmart, Amazon, Costco, and CVS. The company also operates in Europe, Australia, and parts of Asia, generating revenue through its national brands, including Compeed, Solpadeine, Coldrex, and ellaOne.
Q2 2024 Financial Performance
Perrigo reported net sales of $1.1 billion, a 10.7% decline compared to the prior year quarter. Organic net sales decreased by 9.1%, primarily due to a 6.8 percentage point drop in infant formula sales and a 4.0 percentage point decline in the Upper Respiratory and Pain & Sleep Aids categories due to lower seasonal demand. These declines were partially offset by a 1.7 percentage point growth in other business areas.
GAAP gross margin improved by 120 basis points to 37.0%, while non-GAAP gross margin expanded by 190 basis points to 40.6%. However, the company reported an operating loss of $27 million, compared to an income of $57 million in the prior year quarter. Adjusted operating income increased by 1.5% to $139 million, with a 16.7% growth excluding the impact of infant formula.
Segment Performance
In the Consumer Self-Care Americas (CSCA) segment, net sales decreased by 15.5% to $634 million, driven by a 10.8 percentage point decline in infant formula sales and a 4.4 percentage point drop in the Upper Respiratory and Pain & Sleep Aids categories. Adjusted gross margin in this segment improved by 120 basis points to 31.7%, despite a 19.9% decline in adjusted operating income to $91 million.
The Consumer Self-Care International (CSCI) segment saw a 2.5% decline in net sales to $431 million. Organic net sales growth of 1.0% was offset by product line exits and foreign currency impacts. Adjusted gross margin in this segment increased by 100 basis points to 53.6%, with adjusted operating income rising by 29.5% to $91 million.
Key Financial Metrics
| Metric | Q2 2024 | Q2 2023 | Change |
|---|---|---|---|
| Net Sales | $1,066 million | $1,193 million | (10.7)% |
| Reported Gross Profit | $395 million | $428 million | (7.8)% |
| Adjusted Operating Income | $139 million | $137 million | 1.5% |
| Adjusted Diluted EPS | $0.53 | $0.63 | (15.9)% |
Challenges and Achievements
Perrigo faced significant challenges in the second quarter, particularly in the infant formula segment, which impacted overall sales and profitability. However, the company made progress with its Project Energize initiative, aimed at driving efficiency and enhancing capabilities. This project is expected to deliver annualized pre-tax savings of $140 million to $170 million by 2026.
"During the second quarter, we continued to progress our blueprint to build One Perrigo by driving our Project Energize and Supply Chain Reinvention efficiency programs and further consumerizing, simplifying and scaling our business," said President and CEO, Patrick Lockwood-Taylor.
Outlook
Perrigo updated its fiscal 2024 organic net sales growth outlook to -3% to -1%, from the previous +1% to +3%, and total net sales growth outlook to -5% to -3% from flat. The company reaffirmed its adjusted diluted EPS outlook of $2.50 to $2.65, expecting increased profitability from a faster-than-anticipated recovery in the infant formula business, improved product mix, and lower selling expenses to offset the updated net sales outlook.
For more detailed financial information, visit the 8-K filing.
Explore the complete 8-K earnings release (here) from Perrigo Co PLC for further details.
