Q4 2020 Perrigo Company PLC Earnings Call
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Good day and welcome to the pair ago for.
Fourth quarter and fiscal year, 'twenty and 'twenty financial results Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad.
After todays presentation, there will be and opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Bradley Joseph Vice President of Global Investor Relations.
Go ahead.
Thanks, Andrew and good morning, everyone and welcome to Paragon and fourth quarter and fiscal 2020 earnings conference call.
We hope that you and your families and are remaining healthy and safe I hope that you all had a chance to review the press releases, we issued today a copy of the releases the earnings release, the divestiture of our ex release and presentation for today's discussion are available within the Investor section of the Perrigo Dot Com website joining.
Joining today's call are president and CEO, Murray Kessler, and CFO Ray Silcock.
I'd like to remind everyone that during this call participants will make certain forward looking statements. Please refer to the important information for shareholders and investors and Safe Harbor language regarding these statements and our press releases issued earlier this morning a.
A few items before we get started when.
And when discussing the business Murray will reference only non-GAAP adjusted numbers for the quarter fiscal year, and 'twenty 'twenty, one expectations unless otherwise noted.
As a reminder, all comparisons of operating results against the prior fiscal year period include the previously disclosed third quarter 2019, net sales adjustment for the market withdrawal or for any other deal as well as operating results attributable to other than held for sale animal health business and our consumer self care.
Americas segment also of note organic growth excludes acquisitions, and divestitures and currency and both comparable periods and the appendix for today's call. We have provided reconciliations for all non-GAAP financial measures presented and with that I'm pleased to turn the call over to Murray.
Thank you Brad and good morning, everyone.
2020 was a year of tremendous change for pair ago.
At our May 2019, Investor Conference I shared with you and new vision to make lives better by bringing quality affordable self care products that consumers Trust.
Everywhere they are sold.
And two short years, we have come a very long way to making that vision a reality.
Which has required keeping all of our major transformation initiatives on track through the COVID-19 pandemic and all of the uncertainty that came with it so first and foremost I'd like to thank all of my Purgo teammates around the world for their dedication and a job well done.
Kept all our facilities running without missing a single shift anywhere in the world.
They have kept our transformation initiatives moving while working from home and they have made sure our essential products got to the consumers and patients who needed that.
Let's take a look at the progress made on our transformation.
With six acquisitions and for business divestitures, including this morning's announcement of the sale of Rx dwell tariffs, we have completed our portfolio reconfiguration.
Once the Rx deal closes <unk> will be a pure play consumer self care company.
We have consistently delivered on our operating plans have rebuilt a robust new product pipeline.
Built a robust e-commerce platform launched business intelligence capabilities changed 50% plus of the top leaders and the company through both internal promotions and external recruiting.
We are delivering on our $100 million project momentum cost savings plan.
<unk> made significant investments and are investing more than $300 million and further capacity and upgrades and most importantly, we have energized the culture and re instilled a sense of pride that respects diversity and inclusion and the positive for all of our company plays in society when.
And when the Rx deal closes we expect to have over 2 billion and cash on hand, which can be used to advance our consumer self care strategy and fortify our balance sheet.
As a result of all of these transformation initiatives strong topline growth and worldwide consumer has been restored. So at this point all of the commercial pieces are in place and Paragon is poised to create significant value.
And that's why I have agreed to the board's request to extend my contract by three years to finish the job on Paragon and transformation.
With that backdrop, let's and I'll discuss our performance highlights for fiscal 2020, and the fourth quarter.
Fiscal 2020 consolidated net sales were $5 1 billion up a strong plus 5% versus a year ago.
Organic net sales grew one 9%, which included a negative one four percentage point impact from lower cough cold sales and the fourth quarter the.
And the impact from cough cold was much more pronounced and the cough cold high seasonality fourth quarter, resulting in a consolidated net sales decline of two 5% and organic decline of four 7% as I said the main driver was the unprecedented low levels of cough, cold and flu, which dampened cough cold sales and all of our businesses.
And led to a negative five percentage point impact of fourth quarter revenue growth I'll walk through the details of our sales growth on each of our businesses and a few minutes.
Just that EPS for the year was $4 <unk> per diluted share flat versus a year ago and within the original guidance provided over a year ago. We delivered this guidance despite headwinds not factored into our original forecast, notably incremental COVID-19 related costs, the divestiture of robot Rosemont and the are for.
And I mentioned cough cold impact totaling 35 of headwinds of which 28 cents per share was not included in our guidance.
Fourth quarter, adjusted EPS was <unk> 93 per share down 12% versus prior year steeper than projected cough cold sales declines and Q4 had an 11% negative impact and divested businesses had a <unk> <unk> negative impact.
Aside from cough cold consumer self care Americas was in line with our fourth quarter forecast consumer self care International had a better than expected top line recovery as a result of strong advertising and promotional support and Rx sales were lower overall versus year ago tracing to discontinued products, but mix was.
As favorable as higher margin dermatological products recovered faster than we expected.
Given the impact let me spend a few minutes more on cough cold and.
On slide 10, and you can see the almost non existent incidents of flu activity and the U S and EU. According to leading sources the track the data.
We believe this low incident stemmed from social distancing requirements stay at home orders and masked measures designed to prevent the spread of COVID-19.
For perspective cough cold net sales account for approximately 10% of total CSC a net sales annually for CSPI, it's closer to 20% of net sales.
Unprecedented low levels of flu incident had a dramatic impact on consumption as shown on slide 11, and the U S cough cold and consumption was down for pair ago and the entire cough cold category by approximately 35% on a dollar basis compared to prior year.
And thats according to <unk> and the EU pair ago consumption was also in line with total market cough cold consumption declines as you may recall from our last conference call. We built a double digit decline and cough cold sales into our fourth quarter projection, but not that severe so even though pair ago held market share overall.
These declines were about double what we anticipated.
A challenged cough cold season was just one more headwind pair ago overcame and delivering record worldwide consumer net sales in 'twenty and 'twenty as the business grew at plus 6% and total and plus two 3% on an organic basis for $63 million negative impact from the <unk>.
Non existent cough cold season, and the fourth quarter impacted organic growth negatively by one seven percentage points as and.
And as an example of what I said back in April that the impact of COVID-19 is unpredictable and constantly changing and importantly, we maintained market share and cough cold and this historically weak season will rebound in future years. Fortunately <unk> has a very broad and diverse portfolio. This along with.
Our transformation initiatives that enabled a 109% growth and e-commerce and strong new products in 'twenty and 'twenty allowed us to deliver robust growth overall, which led to a record fiscal year worldwide consumer net sales.
Let's turn to results by segment.
Consumer self care Americas was once again the primary growth engine for Paragon.
Fiscal 2020 net sales finished the year up 9% versus a year ago led by OTC oral self care and acquisitions.
Organic net sales were up three 4%, which were partially offset by a negative one six percentage point impact from cough cold.
This entire impact from cough cold materialized late in the fourth quarter, specifically CSC, a cough cold sales declined 39 million and Q4 more than explaining a $10 million or one 4% decline for total <unk> sales and the quarter and again to repeat myself, but 10 million.
And overall decline, but $39 million for cough cold.
Oral self care pain, and digestive health were the primary growth drivers within C. S. C. A this year and benefited from consumer switching from national brands to store and value brands as well as continued robust growth and e-commerce.
E Commerce sales increased over 150% versus prior year.
Oral care benefited from the Doctor Fresh acquisition, which has been successfully integrated and continued organic growth behind strong sales of the placards Brown.
Pay and benefited from continued elevated COVID-19 related demand and the Voltaire and equivalents store brand launch and digestive health benefited from the market relaunch of branded premises and ex ranitidine users switching to digestive health products, where pair ago store brands have a higher market share of total store brand.
Clearly <unk> had an outstanding year, finishing above our 3% organic growth goal. Despite the unprecedented weak cough cold season, while at the same time delivering growth and operating income of more than 8% eclipsing, our 5% growth target and doing it a year earlier.
And I expect it.
Turning to consumer self care International reported net sales were 1% higher or flat organically for 2020 versus a year ago like C. SBA CACI was negatively impacted by cough cold, which had a negative one eight percentage point drag on the annual results.
Ci cough cold sales declined $24 million and Q4 more than explaining the $4 million or one 1% decline for total CSI in the quarter.
Setting aside cough cold.
I'm pleased with the revenue growth and see our Ci, especially with the unpredictable consumer behavior surrounding COVID-19 during the year and even more stringent lockdowns and the EU compared to the USA.
<unk> net sales growth for the year was driven by one the Vms category, primarily new products within the <unk> supplement brand.
Two new innovations within our market, leading dermatology brand Arco.
AI solve for Dean and the pain category, which likely benefited from COVID-19 related demand and for strong e-commerce growth of plus 58%.
It's worth noting that higher advertising and promotion on the CACI branded products and Q4 had a negative impact on the operating margin, but this was purposeful as we believe it was important to provide sufficient support to maintain and build long term brand equity. So I feel good about where we ended.
On <unk> the team fought hard under the most difficult situations and still grow the business.
The development of new and unique products was uninterrupted by COVID-19, putting enough putting us in a position where we have a deep pipeline of new innovations and products to launch and 2021.
E Commerce will continue to be a growth driver and the higher levels of advertising and promotion in Q4 should bode well for the future.
Turning to Rx net sales in fiscal 2020 were up 1% as new products and higher sales and Israel offset negative pricing lower prescriptions due to patient behavior surrounding COVID-19 and lower margin discontinued products fourth quarter net sales were $20 million or seven.
7% lower than the prior year as the team purposefully discontinued $13 million and lower margin distribution products.
The weak cough cold season also contributed to the fourth quarter Rx decline with a $2 million decrease and prescription liquid cough cold products that base Rx business was down two 5% and a quarter with minimal new products and the business still being affected by lower prescription, but the good news here is I mentioned is that our <unk>.
Higher margin dermatological products performed better resulting in a favorable gross profit mix and the quarter and the business has a robust pipeline of new products and approvals heading into next year.
At this point I will turn the call over to our CFO Ray Silcock, who will go through Q4 and fiscal 2020 financial results in more detail. After he does that I will return to discuss today's announcement of the Rx sale and discuss 2021 earnings guidance right.
Thank you Murray and good morning, everyone.
As Murray has already pointed out in 'twenty and 'twenty, we made significant strides and improving sales and stabilizing earnings versus prior year. Despite all the headwinds we faced especially from COVID-19.
On a consolidated basis, the company reported a GAAP net loss of $162 6 million for 'twenty, and 'twenty and loss of $1 19 per diluted share for the year.
On an adjusted basis consolidated net income for the year.
Was $552 million and adjusted diluted EPS was $4 and <unk> per share essentially flat as compared to 2019.
Despite.
35 cents of headwinds in 2020, as a result of COVID-19 related costs divested businesses and the weak cough cold season.
Non-GAAP adjustments were primarily a $347 million Rx impairment charge $295 million of amortization, which we always add back and $95 million decrease and the valuation of the tysabri milestone opportunity.
Biogen sales are to Sabra did not meet the required threshold for us to receive that payment full.
Full details of these and other smaller adjustments can be found and the non-GAAP reconciliation table attached to this morning's press release.
Our non-GAAP adjusted tax rate for the year was 17, 7% driven by a variety of factors, including jurisdictional mix of earnings.
$16 million of cares act benefits the release of $51 million of the valuation allowance and removal of the nonrecurring price erosion tax due to the adoption and final and proposed regulations relating to 163 J interest expense limitations.
From this point forward, all dollar numbers basis points and margin percentages will be on an adjusted basis.
Okay.
Consolidated gross profit in 2020 was flat to prior year at $2 billion a.
And a strong demand from OTC.
And in <unk>.
<unk> and Vms and <unk> as well as the addition of the oral care acquisitions were partially offset by the usual pricing pressure impacts and Rx and lower demand and some CFC international categories in particular for cough cold products.
We also had lower demand within the Rx base business as a result of consumer behavior changes, resulting from COVID-19 and.
In addition, we had an impact from divested businesses and $36 million and discontinued products $34 million.
Consolidated gross margin for 2020 was 39, 3% 170 basis points lower than the prior year. This was due primarily to pricing pressure.
Operational inefficiencies and infant nutrition and the impacts from the oral care acquisitions of premiere and Doctor fresh and both of these oral care businesses have a relatively lower gross margin compared to our overall portfolio.
Excuse me. This is the conference operator, I'm sorry to interrupt you. Mr. Silcock, we are getting some noise on your line or the phone.
Could I ask so I'll pick up your line and see if I can call you back.
Just one moment please.
Thank you.
Excuse me.
Have reconnected the speaker location. Please go ahead.
Consolidated operating income for the year was $796 million slightly lower than prior year as gross profit flow through was offset by increases in employee compensation and insurance expenses consolidated operating margin was $15 seven.
1% 110 basis points lower than the prior year as these increases were partially offset by project momentum cost savings.
Consolidated gross profit for the fourth quarter alone was $514 million.
$16 million lower than the prior year, while consolidated gross margin was 39, 9% down 20 basis points as compared to prior year. The drivers of the lower gross margin performance included the absence of the higher margin Rosemont business, which we divested early.
And the year pricing pressure and lower manufacturing efficiencies and infant formula.
Mostly offset by favorable product mix.
Consolidated operating income for the quarter was $186 million 28 million lower than the prior year due to gross profit flow through as well as higher employee compensation costs and increases in insurance premiums and higher operating expenses and international.
And maintain our market position.
Adjusted operating margin was 14, 4%.
Present, 180 basis points lower than prior year due primarily to increased operating expenses.
Worldwide consumer gross profit in 2020 increased $35 million to $1 6 billion with strong sales and U S. OTC and the oral self care acquisitions, being partially offset by COVID-19 related expenditures and manufacturing and <unk>.
Commissions fees and the impact from the divestment of Rosemont.
Worldwide consumer operating income was $540 million $5 million lower than prior year and operating margin was 90 basis points slower at 13, 2%, primarily as a result of higher operating expenses.
And why consumer fourth quarter gross profit was $408 million, two 7% lower than the prior year as favorable currency movements and the addition of the Doctor fresh oral care portfolio were offset by less favorable product mix lower operational efficiencies and the impact from divested businesses.
Yes.
Fourth quarter operating income was $117 million $36 million lower than the prior year, due primarily to higher advertising and promotion expenditures and international and higher compensation costs.
Now, let's take a look at the individual consumer segments and more detail starting with Americas year to date results.
<unk> full year gross profit increased $51 million to $880 million, primarily due to increased sales and to the oral care acquisitions, despite higher expenses due to COVID-19.
While operating profit increased by $40 million to $527 million.
<unk> gross profit flow through and project momentum savings were partially offset by higher selling expenses due to investments for anticipated future product launches.
Operating income for the quarter was $132 million 13 million lower than the prior year as gross margin flow through and project momentum savings were offset by increased selling expenses as the team invest for future products.
Moving to consumer self care International <unk> full year 2020, gross profit was $710 million $16 million lower than the prior year, primarily due to business divestitures, which had a $25 million impact categories impacted by COVID-19.
Behavior, and lower sales of cough cold products, partially offsetting these declines with the oral care acquisitions and those categories that benefited from COVID-19, and behavior, mostly BMS and pain.
Operating income was $199 million $18 million lower than the prior year gross profit flow through and transformational investments were partially offset by contributions from the oral care acquisitions project momentum cost savings and lower advertising and promotion expense in the fourth.
Quarter International gross profit was $176 million, 2% lower than prior year due primarily to the divestiture of the Rosemont business.
For operating income was $34 million $16 million lower than the prior year due primarily to the impact from divesting Rosemont and higher advertising and promotional expenses to maintain market share partially offset by project momentum savings.
Turning now to Rx 2020, Rx gross profit was $400 million.
$22 million.
Lower than the prior year as albuterol profits were more than offset by reduced volume and dermatological products. As a result of a drop in scripts being written due to COVID-19.
Operating income was down $9 million to $255 million and Q4 gross profit decreased by $4 million to 106 million, while gross margin improved 170 basis points to 44, 9%. The gross margin improvement was due primarily to the favorable product mix.
Mix from discontinuing lower margin products.
Operating income was $69 million 8 million higher than prior year lower operating expenses versus prior year led to an improvement and the Rx operating margin of 540 basis points to 29, 4%.
Moving now to the balance sheet full year operating cash flow and cash conversion remained strong 2020.
2000, Twenty's cash conversion ratio was 115%.
Our balance sheet cash position of $642 million was down from $850 million at the end of Q3, as we spent 164 million and repurchasing three 4 million shares during the quarter.
I'd like to Echo Marty's comments on how proud we are as a company to have delivered on our commitments in 2020 from those essential workers, who kept our plants running to those who work from home every day looking ahead to 2021, I remain confident and our progress as the investments we have.
And our business take hold we are excited about returning to our roots as Perrigo consumer company and delivering on 357 and now I would like to turn the call back Tomorrow.
Thanks Ray.
Now let me give you a brief overview of this mornings announcement to sell our generic Rx division to our tariffs the final major portfolio reconfiguration move and our consumer self care transformation.
Total consideration for Rx is one $5 5 billion, one 5 billion and cash and more than $50 million and other considerations.
<unk> will continue to retain all cash generated by the business until the deal closes and Rx will be reported in discontinued operations, starting with Q1 2021 in accordance with U S. GAAP.
We believe <unk> Rx and its unique portfolio will thrive under the care and focus of all tariffs. They are the ideal owner as far as we're concerned.
Following closure of the deal Paragould consumer will be solely focused on driving significant long term shareholder value through our consumer self care offerings.
Consumer self care has been paragoge focus since its founding and $18 87.
And the Rx offering was only added within the past 15 years with this transaction <unk> is returning to what it has always been with a renewed energy purpose and a strong desire to win.
And in fiscal 2020 worldwide consumer delivered $4 1 billion and sales with $540 million and operating income our product mix is two third store and value brands. One third branded self care products with two thirds of net sales coming from the U S.
Importantly, pair ago consumer will be a global leader and the growing self care market with an unmatched product portfolio and digital footprint and the U S. Private label space. The company is projected to have over 2 billion and cash on the balance sheet. After the transaction closes.
The new pair ago consumer self care company is projected to deliver a 3% organic revenue growth, 5% operating income growth and 7% EPS growth algorithm on a comparable basis going forward.
For 2021 that means are plus 7% EPS commitment is embedded at the midpoint of our guidance range of $2 50.
For $2 70.
It also reflects Rx being reported in discontinued operations and adjusts for the difference and tax rates between the consumer and Rx.
While we are still working through the accounting treatment of Rx.
Want to remind everyone. We are committed to the plus 7% on standalone consumer.
Also remember our EPS guidance is before we put any of the $2 billion plus and cash we have at our disposal on the balance sheet.
Or we'll have to work, we will share our capital allocation plans when appropriate.
Let me take a minute to walk you through how we get to plus 7% EPS growth on Paragon consumer for 'twenty and 'twenty one.
Organic growth of 3% is expected to come from 2% to 3% category growth on average and the categories and which we compete plus modest share gains from new product launches continued ecommerce growth and moderate modest and modest positive pricing and the EU.
The full year impact of the prior year acquisitions, and a doctor fresh and the eastern European skin care products will be additive to organic growth.
And will be modestly offset by our SKU rationalization initiative, we launched internally, which is designed to expand gross margins across our consumer businesses.
This initiative, along with project momentum cost savings and P&L leverage gets us to the plus 5% consumer operating income growth and 2021.
Our repurchase of $3 4 million shares of <unk> stock and the fourth quarter of 2020 bridges us from the 5% operating profit growth to the plus 7% EPS growth target for 2021.
In summary.
While facing many headwinds during 2020 my team delivered on our promises to investors and delivered record results.
I'm very proud of them I am equally proud of how they were able to simultaneously keep our transformation on track.
With our announcement of the Rx sale <unk> is now a pure play consumer self care leader with a growth profile in line with CPG peers that trade at much higher multiples.
Our business model is highly defensible with strong market shares and advantaged categories, our ability and skill set and partnering with retailers is an advantage and the evolving landscape of how consumers go to market.
Have a strong team with extensive experience and the areas that make us win and our balance sheet is strong with lots of dry powder to invest and our business and deliver on our growth targets I believe significant value creation going forward will come from one consistently and sustainably.
And <unk> to deliver attractive 357 growth on our newly focused business a growth algorithm, which compares favorably to CPG peers we.
We expect these results will drive multiple of cash and closer to our CPG peer group over time and to significantly enhancing that growth as we put the $2 billion and excess cash on our balance sheet to work.
For Billy through prudent and revenue accretive M&A.
Importantly, we move into a peer set with an average pay above 20 times are strong strategic position and our focus on consistent and sustainable 357 growth makes us a top tier and that here for that <unk> trade at two five times and higher.
We have proven over the past two years with our transformation that we deserve a seat at this table and we will work hard every day to continue to deliver on the pair ago advantage as we make lives better by bringing quality affordable self care products that consumers trust everywhere. They are sold.
Separately, we fully understand that the tax overhang on our business remains a concern for investors, but we are working diligently to remove this overhang just as we work diligently on the Rx separation as we have said before we have very strong defenses and are looking forward to our day in court, which we expect to.
It happened on the major cases within the next 18 months again all of this is why I have extended my contract I'm excited by what we have accomplished to date and even more excited but all by all that remains to accomplish going forward I intend to finish the job and create significant significant value for our shareholders.
And of which I am one and with that operator, I will open up the call to questions.
We will now begin the question and answer session.
Ask a question you May press Star then one on your telephone keypad.
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Anytime if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Chris Schott of Jpmorgan. Please go ahead.
Hey, guys. Thanks for the good morning, and thanks for the questions.
Can you just I guess my first question just elaborate a little bit more on your priorities for capital deployment, you're always seeking to have a lot of cash and the balance sheet.
Post the divestiture I guess, specifically should we anticipate a bulk of your capital deployment is going to be focused on strategic transactions or will debt paydown and share repo b and important consideration as we think about debt capital deployment and I say that.
Follow up for two after that.
Yes, I mean, Chris they are all tools and our toolbox, but my goal.
And as to put this money to work and and rebuild back to the operating income.
Through strategic M&A, I mean that would be my my first priority, but and there are opportunities out there and we'll evaluate them, but I will also tell you. We will continue that just as we have and the path to be extremely disciplined.
And our purchases and I'm, not just going to run out and buy anything but.
My ideal is to continue to build scale and the company.
Find targets that accelerated growth and make for a bright and strong future going forward. So we.
And we will be others play a role I mean, obviously, our net debt number is will come.
Way down and the beginning and we'll we'll balance it out so I mean.
It's a little difficult to answer at the moment, but we will share those with you, but you know my priority absolutely and then just on that same topic is there.
I guess are there targets that you've looked at and the past that I have the capital structure or just the setup of the company didn't makes sense that would make more sense now I E. What's your balance sheet, a limiting factor and some transactions that will be less of a factor going forward or was that not so much for rate limiter.
I mean I.
Yes, the answer is yes, so I mean.
And for sure and there.
We are.
There was a certain limiting factor I'd have to agree with that yes.
Okay and just a final one just for me just circling back to the core business for 357 target for consumer and 2021, just help US just bigger picture is there going to be any major differences to think about.
The Americas versus international driving that growth either top line or margin expansion or should we think about fairly balanced growth between the two divisions. Thanks so much.
So you've got a little bit of.
Acquisitions and there the 3% number just to remind everybody is the organic number the 5% and the 7% wherever.
Acquisitions count towards that number although I'm not talking about the 2 billion on sort of the smaller things we've done in the past, but bottom line is that I have given every single unit and this company and every single unit and this company is being paid on $35 seven.
For them they are not the seven and there the 35%.
Okay.
Very good but it sounds like for in terms of the divisions and that can be a quick one division versus the other driving the growth as we think about 'twenty, we're expecting for different reasons. We're we're expecting similar performance, it's not exact but its structure and the goals and a three five for for everybody. Okay. Perfect. Thanks, So much I appreciate it.
The next question comes from Gregg Gilbert with Truest. Please go ahead.
Good morning, Good morning, Greg Good morning, Murray I have a few.
First I'm going to start with just the sale. There was a time when you sounded confident that you'd get well over $2 billion for the business. So I was hoping you could highlight what's changed and the in the environment, which changed and your sense of urgency to get out of that business at any cost et cetera.
I'll start there.
Okay, well I don't feel like we got at any cost.
Basically we're talking about.
And the roughly the same amount of money is just short of two years ago. When I was looking at the situation with a lower earnings base on Rx. So back then it was a five times deal today, It's seven times deal add that plus we made 400 around.
Around $400 million and cash.
During that period of time, so from selling it today versus selling it then.
Sure.
Closer to 2 billion versus the $1 5 billion back then and.
The seven multiple on it with the Youre starting out a little bit of a lower stock price. So all the stars are lined up to get this done give pair ago, the clean fresh consumer start and give us a bunch of dry powder. So.
And Theres, a number of factors, but I thought I'd interest.
And operate in the best interest of shareholders.
And we have and again I think it's as simple as that.
And the back then the operating income for the division was like a third higher.
Okay and.
In terms of capabilities going forward will purgo, b and a position to file andas on products that go OTC or could go from Rx to OTC and or their development projects underway now that will be transferred from the Rx business to the consumer business and then I have one last one.
They won't be transferred but we have there are a number of mutual long term relationship components to this contract.
Including manufacturing.
The relationship on <unk>.
Rx to OTC switches so.
I believe we will have a very long partnership with this division and we needed to be successful because like I said, we make things for them they make things for us.
Okay, Great and lastly.
For now to the extent.
Consumer folks are not already looking at the story, presumably they are but for new folks or existing folks do you want folks to view purgo as primarily a private label player a branded player or some sort of hybrid it obviously.
<unk> to that valuation discrepancy you talked about even without Rx folks are willing to.
For the extent, they're willing to look at private label versus Leverages <unk> global brands could have implications for for that multiple that you are seeking.
Yes, and I understand exactly what youre, saying I mean, the reality is is we are a much more branded player and.
And we're primarily branded player and internationally and were primarily private label, we will always be.
The company and the U S that the core of it will be customizable.
Solutions for our customers to increase and increase their overall baskets that they sell and store.
Yeah.
What I think is different than most branded people traditionally think of as the world is changing a lot and.
And brands in that in the store brand in our categories.
Generally speaking outsell the national brands that.
And that's very unusual and most private label categories that and our margins are comparable generally speaking on the operating income line.
The bigger branded players so it's a different model here and I will have to continue to educate people as they they take a closer look but if you take like the biggest store brand and the country.
It's five or six times bigger than any other national brand out there.
It's staggering and youre going to see those customers, especially with ecommerce, especially with direct to consumer all the announcements you've been hearing.
Instant delivery et cetera.
Those retailers will have a competitive advantage over the national brands and my opinion, and we're there to partner with them and help them take advantage of it. So yes, I would stack our portfolio up against any branded products and the <unk>.
Breadth that we have to be able to handle things like cough cold and flu I don't decide the multiple or the market decides.
And the multiple but I think if you look at the performance of the company if you strip away Rx.
Over the past few years and you look at the guidance, we're giving going forward and the projections going forward, we will compare very favorably to the peer group.
Thank you.
The next question comes from David Risinger of Morgan Stanley. Please go ahead.
Good morning, David David.
Good morning, Murray and Ray so thanks very much for all the details.
And I have two questions and then a follow up. So my first question is could you discuss the pace and magnitude of new consumer launches in 'twenty and 'twenty, one and 2022 and just give us a feel for that that'll help us understand the momentum and the business and.
And a little bit more in terms of quarterly modeling.
And then.
With respect to pricing pressure.
Ray you had touched on that could you discuss pricing pressure in 2020, and more detail and pricing prospects for 2021, and then I have a follow up on potential liabilities.
Okay.
So I mean, we don't give specific timing on launches, but I've said pretty much everything I've said, we would do.
I think almost ever.
If not everything we said we would do we have done back in May 19th So back in May 19, and I told you that this year, we would be launching and natural line of products and to the United States.
That will.
Happen.
And I believe we've already announced its own fine, saying that we launched into and are now going to compete and the probiotics market with the launch of probe if I throw out a number of markets and in Europe and that launch and it has.
Already commenced.
And there are new products throughout the year that are built into the projections. The quarterly numbers are going to be more affected like when you think of the net sales for <unk>. This year I think you've got to go back to like a 2019 and not 2020 in terms of the percentage splits.
And we we were very front loaded last year because of the inventory and pipeline builds and when Covid hit and in March and April.
And.
And listen we expect that cold coffee and.
Still a bit challenging and the first quarter so it'll.
And there'll be a little bit of a reverse of next year I think youll hub, you'll start out a little slower and then it will just build when you get to the opposite when you had all the day loading happening and.
And certainly next fourth quarter when you got.
And thats non existing coal cost saves and anything.
A pretty good increase versus year ago.
Right.
Yes, I mean, I think as we look forward interest into 2021 on pricing, we see it probably being in line with historical trends, although I think we've seen some lessening of the downward pressure and the U S and we and.
And we do see positive price and our international Division, which we've seen for for a while now.
So and the downward pricing pressure has not really been Murray.
Much of a problem there.
But I think it's unlikely to lessen a lot I think and in the U S.
But I think we are seeing some some reduction and especially as we have a pipeline of new products continues to grow and becomes more significant.
We've always said that one other reasons, we face so much pricing pressure is because we have this.
We don't everything out to talk about except for price and we are changing that with changing.
And that dialogue is changing dramatically and now that we're coming back to the table with innovation pricing and 2020 that it was still down but it was actually a favorability to our plan.
It was it was less than we would normally model and the dialogue is changing and we're having great conversations going forward and.
How are power basically what I, just said before which is our ability to customize and develop insurgent brands.
Custom brands.
And the ability to be able to handle all of that and our manufacturing gives us.
Our competitive edge, we believe versus.
The national brands, when you look at where the customers are strategically.
Boeing.
Meaningless, hopefully less price discussion and more innovation share growth and building baskets.
Yes.
Great, Okay, and then regarding potential liabilities.
Will the potential generic price fixing liabilities stay with <unk> or transfer to the buyer and then regarding potential tax liabilities could you walk through the key procedures events and timing to watch looking forward. Thank you.
Sure.
We continue to feel very good about all of those.
Cases that you just mentioned whether it was the price fixing or the <unk>.
The tax liabilities.
Let me handle the first part <unk> retains the liabilities, but we share and this the expense up to a cap. So the buyer is our terraces and scented too aggressive to work with us to.
To minimize that so they're sharing if there are any expenses, there and I'm still optimistic.
They would share in that and.
<unk>.
As far as the tax one do I think we have said that and we are we expecting.
And the tax Appeals commission to be the next step where we have very strong defenses and we're looking for our day to day in court and I believe that will happen later this year.
The other one day pay we already told you last call the $800 million kind of off the table that went into the.
And based on it getting accepted by the MLP.
It's basically then they agreed that it was a jurisdictional issue. So that's a fight between Ireland and the U S and.
My lawyers tell me there is a very good chance that that just goes away.
We have some other little ones that.
Will happen this year I think.
I think over the next 18 months will make real headway and and putting some of those behind us that's not the biggest ones behind us.
Thank you.
Thanks, David.
The next question comes from Elliot Wilbur with Raymond James. Please go ahead.
Hi Elliot.
Hi, Good morning. This is Lucas Lee on for Elliot.
Quick questions on Rx business could you give us some color on what the tax effect of the Rx sale is and how much cash do you expect to Matt. Thank you.
I Couldnt hear the debt.
Question it.
And the tax leakage you mean.
Yes, yes.
Yes, we're looking at tax leakage and in the 100 to $150 <unk> million dollars range.
Uh huh.
So we've already said that our cash.
Cash expectations, one 5 billion.
<unk>, approximately 55 million and other.
And the consideration basically covering some other liabilities, which we may or may not pay in advance of closing.
And as I said, there will be some.
<unk> toward the mid 100 range.
And the tax leakage.
Thank you.
Okay.
For the $2 billion.
Right you got six over $600 million on the balance sheet right now plus call. It net one for something like that.
And we have one question left your last question comes from David Steinberg with Jefferies. Please go ahead.
Okay.
Thanks and.
I have two questions first one is.
Regarding gross margin and the consumer segment.
For the past.
A couple of quarters.
And continued contraction in the case of CSC.
Over the last couple of years I'm, just curious when do you expect gross margins and the consumer segments to stabilize or expand and then and then secondly, Rx to OTC switches.
You had Voltaire and last year, I know youre expecting days' index to hit in 2022.
And more recently, you've been talking about some other potential Rx to OTC switches like Seattle, It's tamiflu squeeze.
Sort of line of sight do you have and as well.
Any other potential switches in the coming years. Thanks.
And on the switches, there's a there's a fair amount of activity, but there are a few years out yet but you are.
Right pointed out and as an accent next year right. That's still on track for next year and that would be a big one because we'll be doing both.
And it will be leading the branded.
Switch and if you remember back to 2019 I had zero switches built into the way we built out for the strategic plan, we have a very very robust new product pipeline and with half a billion dollars of consumer products and our new product pipeline. Rx also has a robust pipeline, but that will go with.
Altera and switches I view as upside to the upside to the plan. So.
Right now I think you have the full year benefit of Altera and.
You can count on Nathan ex next year and beyond.
And that will keep you up to speed as it goes along as far as gross margins I'm very confident and answering the question that we expect gross margins to increase next year and our consumer businesses and numbers of actions have been taken as I talked about the SKU rationalization project and product prioritization and <unk>.
Number of meaningful changes have been have been done and I've gone through some of those numbers and the past but.
So when are you when should you look for it and you should look for next year, We said 2021 should show growth and gross margins on the consumer businesses.
Was there a follow up Mr. Steinberg.
Okay. Thanks for answering the second question first.
Okay.
Okay and then at this time I'd like to turn the conference back to Murray Kessler for any closing remarks.
Well, thank you everybody.
I hope you're learning that this management team when it makes commitments it it delivers on them and it.
It's been.
It's crazy to me that it's already been two and a half years since side.
And I'm excited to be staying on for three years to finish the job.
Think pair ago has a very very bright future ahead of it we have a world class set of.
Consumer products.
And we've installed world class talent.
And it's up and promoted the world class talent that we had and that's all in place we've put in place and are putting in place world class infrastructure and credit and.
Capacity and I T.
And we will have $2 billion and dry powder and I'm Super excited about what the next few years will look like and we appreciate your support.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
Okay.
And.
And.
And.
Yes.
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