Here's Why Perrigo Company Rose as Much as 20.5% Today

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What happened

Shares of Perrigo Company (NYSE: PRGO) rose over 20% this morning after the healthcare leader released second-quarter 2017 financial results and adjusted full-year 2017 guidance. While revenue slipped 8% from the year-ago period, that was mostly caused by its divesting from unprofitable businesses late last year. Adjusted for those divestitures, sales increased year over year.

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Growth in the top line is great, but Wall Street is swooning over improved operational efficiency. Profitability, or the promise that it's within sight after a painful recalibration of the company, is the main driving force for the stock today. As of 11:49 a.m. EDT, the stock had settled to an 18.9% gain.

So what

The performance for the first half of 2017 does a better job of communicating the year-over-year improvements at Perrigo Company than looking at only the most recent quarter, although much of the change in income is the result of major one-time impairment charges that were taken in 2016.

Nonetheless, management is executing against the strategy laid out to make Perrigo Company a more profitable, more efficient, and healthier business. Since the end of December 2016, long-term debt has been reduced by $1.9 billion, or 37%. That will save the company over $20 million per year in interest expenses, which amounts to an earnings boost of $0.14 per share.

Management also updated its full-year 2017 guidance as follows:

  • Reported diluted EPS (a GAAP metric) will be in the range of $0.84 to $1.09, compared to the previously reported range of $1.82 to $2.17.
  • Adjusted diluted EPS (a non-GAAP metric) will be in the range of $4.45 to $4.70, compared to the previously reported range of $4.15 to $4.50.

Now what

Perrigo Company shareholders have seen the stock price fall by 60% since the mid-2015 peak, and that includes today's gains. While it hasn't been fun, there are signs that management is moving the company into a better financial position. Still, as costs fall and margins improve in the years ahead, investors need to see GAAP EPS increase -- that's the long-term driver of any business.

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Maxx Chatsko has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.