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Morningstar | Perrigo Suffers More Self-Inflicted Wounds in 4Q as Concerns Remain on Horizon

Despite a fourth-quarter revenue decline of 7% that was slightly ahead of our expectations, Perrigo reported weaker bottom-line performance than we expected, thanks mostly to unexpected downtime of an infant manufacturing facility during the quarter that lopped off $0.08 in year-end earnings per share. While management expects this temporary issue to be resolved by the end of this quarter, Perrigo still faces concerns about poor service levels in its U.S. consumer health business, pricing pressure in its prescription topicals segment, the overhang of the potential Tysabri-related tax penalty in Ireland, and uncertainty about the strategic direction of the business as new CEO Murray Kessler hopes to transition Perrigo to a self-care company. Perrigo plans to update investors on its self-care strategic plan at an investor day May 9, which will also include plans about the separation of the prescription topicals business and 2019 guidance.

We’re skeptical of growth opportunities in expanding the product scope of the business, especially into either branded, more innovative areas where Perrigo doesn’t have an established record or less regulated, lower-barrier-to-entry product categories. We may lower our fair value estimate slightly on some of the firm’s near-term issues, but we plan to keep most of our long-term projections in place. We’re also keeping our no-moat rating unchanged for now. As a positive, Perrigo received a $250 million Tysabri milestone payment during the first quarter.