Third Quarter Results
Net sales from continuing operations for the third quarter of fiscal 2009 were $505.9 million, an increase of 5%. Reported income from continuing operations was $46.5 million, or $0.50 per share, compared with $40.2 million, or $0.42 per share, a year ago, an increase of 16%. Excluding charges as outlined in Table II at the end of this release, third quarter fiscal 2009 adjusted income from continuing operations was $47.0 million, or $0.50 per share.
As part of management's strategic review of its portfolio of businesses, in March 2009, the Company committed to a plan to sell its Israel Consumer Products business. The results of this business are reflected in the condensed consolidated financial statements as discontinued operations for all periods presented. The Company has engaged the investment banking firms of William Blair and Poalim Capital Markets to assist in this sale process, which is expected to be completed within one year.
Perrigo's Chairman and CEO Joseph C. Papa stated, "I am very pleased with our record third quarter sales and earnings. In this quarter, the over-the-counter category fell 3% versus third quarter last year and the national brand category fell more than 7%, while Perrigo Consumer Healthcare grew 12%. We were able to achieve this growth rate despite the fact that we are comparing the results to the launches of Omeprazole and Cetirizine at this time last year. More consumers than ever are realizing the value that store brands have to offer."
Nine Months Results
Net sales from continuing operations for the first nine months of fiscal 2009 were $1,498.7 million, an increase of 19% over fiscal 2008. The increase was driven by the Consumer Healthcare segment and included $203.7 million of consolidated new product sales. Reported gross profit of $432.1 million was an increase of 13% over fiscal 2008, driven by the Consumer Healthcare segment. The year-to-date reported gross profit percentage in fiscal 2009 was 28.8%, down from 30.5% last year. Reported operating expenses were $240.4 million, an increase of 5% over fiscal 2008. However, as a percentage of net sales, operating expenses were 16.0%, down from 18.2% in fiscal 2008. Reported income from continuing operations was $108.8 million, relatively flat over fiscal 2008.
Consumer Healthcare segment net sales in the third quarter were $419.1 million compared with $373.0 million in the third quarter last year, an increase of $46.1 million or 12%. The increase resulted from approximately $39.2 million of sales from the acquisitions of JB Labs, Unico, Diba and Brunel, and $31.4 million from sales of new and existing products in the gastrointestinal, cough/cold, smoking cessation and nutrition categories. These increases were partially offset by the impact of unfavorable changes in foreign currency exchange rates of $12.4 million and the absence of the U.K.'s Vitamins, Minerals, and Supplements (VMS) business's sales of $9.8 million.
Reported operating income was $62.3 million, compared with $51.7 million a year ago, largely driven by a favorable mix of products sold both domestically and internationally, gross margins from sales by Unico and the absence of a $2.9 million charge to cost of sales related to the step-up in value of inventory acquired in the Galpharm acquisition that was recognized in fiscal 2008. Adjusted operating income was $63.0 million, an increase of 15% compared to a year ago.
For the first nine months of fiscal year 2009, Consumer Healthcare net sales increased 28% or $270.3 million compared to fiscal 2008. The increase resulted primarily from sales of new and existing products of approximately $212.7 million, primarily in the gastrointestinal, cough/cold, nutrition, smoking cessation and analgesic categories. The increase was also driven by $109.8 million of sales from JB Labs, Unico, Galpharm, Brunel and Diba. These combined increases were partially offset by the absence of the U.K.'s VMS business's sales of $25.7 million and the impact of unfavorable changes in foreign currency exchange rates of $22.4 million.
On February 20, 2009, the Company announced that it began shipping over-the-counter (OTC) Ibuprofen and Diphenhydramine Citrate Tablets, 200/38 mg (Ibuprofen PM). The product is being marketed under store brand labels and is comparable to Wyeth Consumer Healthcare's Advil(R) PM tablets, 200/38 mg, indicated as a pain reliever (NSAID)/nighttime sleep-aid. Estimated brand sales for the product for the 12 months ended December 21, 2008 were $71 million.
The Rx Pharmaceutical segment third quarter net sales were $41.7 million compared with $49.2 million a year ago. The decrease was due primarily to the absence of the fiscal 2008 receipt of a one-time cash payment of $8.5 million from a customer in lieu of expected future minimum royalty payments, as agreed upon in a license termination agreement. Net sales were also negatively impacted by a $2.2 million reduction in non-product revenue, as well as continued pricing pressures on certain existing products in the portfolio. These decreases were partially offset by $5.1 million of increased sales volumes on other products in the portfolio.
For the first nine months of fiscal year 2009, net sales for the Rx Pharmaceutical segment decreased 6% compared to fiscal 2008. The decrease was due primarily to the aforementioned one-time cash payment of $8.5 million. The decrease in net sales was also due to an $8.2 million reduction in non-product revenue, as well as pricing pressures due to continued competition in the marketplace for generic drugs. These decreases were partially offset by new product sales of approximately $11.0 million, along with an increase in sales volumes on the Company's existing portfolio of products of approximately $7.0 million.
On March 17, 2009, the Company announced that its partner Cobrek Pharmaceuticals, Inc. (Cobrek) had filed an Abbreviated New Drug Application (ANDA) for Clindamycin Phosphate Foam 1%, a generic version of Evoclin(R) Foam 1%. The Company believes that Cobrek is the first to file an ANDA with a Paragraph IV certification against Evoclin(R). Evoclin(R) (clindamycin phosphate) Foam 1% is a topical antibiotic indicated for topical application in the treatment of acne vulgaris, and had sales of approximately $44 million for the 12 months ended January 2009, as measured by Wolters Kluwer Health.
The API segment reported third quarter net sales of $31.0 million compared with $37.8 million a year ago. The decrease was due primarily to the absence of a one-time $4.9 million accrual reversal related to a long standing customer contract negotiation recognized in fiscal 2008, along with approximately $2.0 million resulting from unfavorable changes in foreign currency exchange rates. Operating income was $4.3 million, compared with $6.0 million last year, reflecting the aforementioned accrual reversal, as well as unfavorable foreign currency exchange rate changes, partially offset by favorable contributions from new products, pricing improvements and lower operating expenses.
For the first nine months of fiscal year 2009, net sales decreased 13% compared to fiscal 2008. This decrease was due primarily to a decline of approximately $16.7 million in sales of three key products, the absence of the one-time $4.9 million accrual reversal mentioned above and approximately $1.0 million resulting from unfavorable changes in foreign currency exchange rates. These decreases were partially offset by a $5.3 million increase in the sales mix of existing products, along with new product sales of approximately $3.2 million.
Continuing operations for the Other category, consisting of the Israel Pharmaceutical and Diagnostic Products operating segment, reported third quarter net sales of $14.1 million, compared with $20.6 million a year ago. Operating income was $2.7 million, up from $1.4 million last year. The increase in operating income was due primarily to operating expenses for fiscal 2009 decreasing by 30% compared to fiscal 2008. The decrease was due primarily to lower employee-related expenses and slightly favorable changes in the foreign exchange rate.
For the first nine months of fiscal 2009, net sales decreased $5.6 million or 9%, compared to fiscal 2008. The decrease was driven primarily by a $7.6 million impact related to a change in a customer contract. In addition, sales in the diagnostic product line decreased by approximately $2.4 million. These decreases were partially offset by changes in foreign currency exchange rates, along with increased sales due to changes in the sales mix of existing products in the remaining portfolio.
Chairman and CEO Joseph C. Papa concluded, "We are now expecting adjusted fiscal 2009 earnings from continuing operations to be between $1.80 and $1.90 per share, which implies a year over year growth rate of adjusted earnings from continuing operations of 15% to 22% over fiscal 2008. This is revised from our previous guidance of $1.75 to $1.90 per share, excluding charges outlined in Table III at the end of this release. Looking ahead, we believe Perrigo is well positioned to continue to add value to its customers and shareholders."
Perrigo will host a conference call to discuss fiscal 2009 third quarter results at 10:00 a.m. (ET) on Thursday, May 7. The conference call and presentation slides will be available live via webcast to interested parties on the Perrigo website http://www.perrigo.com or by phone 877-248-9413, International 973-582-2737 and reference ID# 95095054. A taped replay of the call will be available beginning at approximately 2:00 p.m. (ET) Thursday, May 7, until midnight Friday, May 15, 2009. To listen to the replay, call 800-642-1687, International 706-645-9291, access code 95095054.
Perrigo Company is a leading global healthcare supplier that develops, manufactures and distributes OTC and generic prescription pharmaceuticals, nutritional products, active pharmaceutical ingredients (API) and pharmaceutical and medical diagnostic products. The Company is the world's largest manufacturer of OTC pharmaceutical products for the store brand market. The Company's primary markets and locations of manufacturing and logistics operations are the United States, Israel, Mexico and the United Kingdom. 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. The Company has based these forward-looking statements on its current expectations, assumptions, estimates and projections. While the Company believes these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond the Company's control. These and other important factors, including those discussed under "Risk Factors" in the Company's Form 10-K for the year ended June 28, 2008, as well as the Company's subsequent filings with the Securities and Exchange Commission, may cause actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. The forward-looking statements in this press release are made only as of the date hereof, and 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.