The Not-So-Subtle Reason Behind Perrigo Company PLC's 13% Move Higher

What happened

Shares of Perrigo (NYSE: PRGO), a provider of consumer goods and over-the-counter pharmaceutical products, rocketed higher by as much as 13% during Thursday's trading session after the company reported its third-quarter earnings results. As you can likely surmise by the move higher, it was smiles all around for Wall Street and shareholders (for a change).

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So what

For the quarter, Perrigo reported adjusted net sales of $1.22 billion, down 2% from the year-ago quarter, or 3% on a constant-currency basis. If divestments are excluded, adjusted net sales would have actually risen by 3% sans currency movements. Highlights for the company included 5% net sales growth from its consumer healthcare international segment, and 4% net sales growth in prescription pharmaceuticals, excluding a $10 million year-over-year impact to Entocort.

In terms of its bottom line, Perrigo reported adjusted net income of $197 million, or $1.39 per share, which was a nice improvement over the $176 million, or $1.23 per share it earned in the third quarter of 2016. This profit expansion was attributed to:

  • cost-cutting measures
  • the repurchase of $133 million shares worth of common stock during the quarter, which lowers the outstanding share count and can boost earnings per share (EPS)
  • debt reduction (leading to lower interest expenses)
  • the launch of new products

Comparably, Wall Street was looking for just $1.17 billion in adjusted sales and $1.11 in adjusted EPS, meaning Perrigo topped expectations with plenty of room to spare. The company also raised its full-year profit guidance to a range of $4.80 to $4.95 per share, up from previous guidance that had called for $4.45 to $4.70 in adjusted EPS.

Now what

This was a great quarter for Perrigo, and its second market-topping quarter in a row. What, perhaps, is most impressive is that the company has slashed its long-term debt by nearly $2 billion since the end of 2016. This will result in considerably less in interest expenses and more financial flexibility for management. This translated into a record third-quarter adjusted operating margin of 16.4%.

On the other hand, Perrigo's divestments and slower growth in its bread-and-butter domestic over-the-counter pharmaceutical market continues to push net sales lower, which is still a concern for shareholders.

Don't get me wrong, I don't want to take anything away from Perrigo's management team, which appears to have the company on the right track, once again. But it might be best to wait until net sales pick up before dipping your toes in the water.

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