Q1 2021 Perrigo Company PLC Earnings Call
Hello, and welcome to the paragraphs first quarter 2021 financial results conference call all participants will be in listen only mode.
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Now I'll turn the conference over to Bradley Joseph Joseph Please go ahead.
Thank you.
Everybody and welcome to Perrigo as first quarter of fiscal 2021 earnings conference call.
The on a chance to review the press release, we issued earlier this morning, a copy of the earnings release and presentation for today's earnings discussion are available within the Investor section of the Perrigo Dot Com website.
Joining today's call are president and CEO, Murray Kessler, and CFO Ray Silcock.
I would 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 in our press release issued earlier this morning.
A few housekeeping items of note before we start.
The first unless otherwise stated all financial results discussed and presented our own of continuing operations basis.
We do not include any contributions from the Rx business, which is accounted for as discontinued operations.
In addition to other non-GAAP adjustments as described in the appendix adjusted profit measures, including adjusted EPS and adjusted operating income exclude from both periods of certain costs incurred to support the operations of the Rx business, which are reported in continuing operations.
For the appendix for additional details and for reconciliations of all non-GAAP financial measures presented.
And second organic growth excludes acquisitions divestitures and currency in both comparable periods and with that I'm pleased to turn the call over to Murray.
Yeah.
Thank you Brad and good morning, everyone.
Let's start with a recap of the tremendous progress that has been made on the pair ago transformation by the collective efforts of my peridot colleagues all over the world.
To be specific we unveiled the pair ago transformation plan at our Investor Conference two years ago, two years ago almost to the day at that conference. We shared with you our aggressive plans to transform pair ago from.
From a health care company into a consumer self care company in order to provide focus increased certainty restore growth and ultimately unlock significant value.
We also introduced the vision that is guided everyone in the company every day.
To make lives better by bringing quality affordable self care products that consumers trust everywhere. They are sold.
Two years ago.
I share that plan would take three years to implement.
Today I'll make two years later I am proud to say that all of the major elements of the plan are now nearly complete.
About a year ahead of schedule.
And while being a global leader in self care will require continuous improvement.
I believe pair ago was that an inflection point right now.
Let's take a quick look at what has been accomplished.
First.
We have meaningfully reconfigured our portfolio with the most notable action being the divestiture of our non core generic prescription pharmaceutical businesses.
In addition to the divestiture of the number of smaller transactions.
Proceeds from the divestitures today of.
Along with our strong cash flow generation have been used for consumer bolt on acquisitions that either broadened our south care portfolio, notably in oral care with our acquisition of or in the air or accelerated growth within our existing businesses. Once the Rx deal closes we will of divested three.
The company is generating $2 billion in proceeds and made seven acquisitions out of cost of just over $1 billion.
As a result.
<unk> is now a pure play consumer self care company.
Comparable the other publicly traded consumer companies, which will soon have over 2 billion available to invest.
For further build our business.
Second.
In addition to Reconfiguring our portfolio.
We identified and executed against many areas in our business that needed to be improved to successfully evolve into a pure play consumer company.
We upgraded our new product pipeline.
Systems processes and people.
We have added top tier consumer talent to our marketing organizations.
We have centralized our R&D organization globally, and we have consistently met our internal goal of developing and then maintaining more than $500 million and our new product pipeline.
Hundreds of consumer Skus have been launched over the past two years and the entire program has been turbocharged by meaningful investments in E Commerce and digital capabilities.
We also made investments in infrastructure, including increasing U S tablet capacity introduced business intelligence capabilities that have led the industry first omni channel market share data reporting and significantly improved customer service levels that has led to increased sales and more favorable customer.
Discussions.
Collectively all of these factors have led to a revitalization of our business and taken care of go from four years of almost no growth to high single digit growth over the last two years.
The third part of the transformation was the restore certainty the pair ago and we have come a long way in this regard as well.
From years of inconsistency, our forecast of become much more reliable and even with all of the challenges of a global pandemic, we have consistently delivered on our financial commitments.
The sale of generic Rx removes a huge concern over business volatility.
And we have strengthened our governance diversity and inclusion cyber security and commitment to ESG.
Yeah.
We also are making meaningful progress with what currently concerns investors. The most of the tax and leave alone the overhang on the business or on the stock.
For our third quarter 2020 conference call, we announced that the 843 million U S. Athena tax assessment was accepted by the mutual agreement program.
For the Irish U S income tax treaty designed to prevent double taxation and we remain optimistic that this matter is on a good path towards the resolution.
And now today I'd also like to inform you that we're in discussions with Irish revenue about a potential settlement of the $1 6 billion plus the euro tax assessment.
Discussions have been largely of the technical nature.
And grounded in law and have taken place over the last few months.
There has been sufficient progress in these discussions for <unk> to submit a board approved offer to settle the matter.
From our perspective, a reasonable resolution grounded in law is preferable to what could be years and years of litigation.
But if resolution is not reached be clear pair ago still maintains that its original tax filings were correct and is prepared to vigorously defend its position, but I repeat myself the two parties.
Have started talking.
And I believe we are on a path towards a resolution and the shareholder friendly manner.
Time will tell.
This is all I will discuss on this topic.
Good day.
So as previously stated with our transformation activity is nearing completion and with certain day significantly improved.
Per ago is poised to create meaningful shareholder value.
Said simply pair ago is now a pure play of consumer self care company.
With the growth algorithm that compares favorably to CPG companies that trade at significantly higher multiples.
The company will have plenty of dry powder for disciplined M&A, putting pair ago in a unique position to supercharge the growth and create value in a consistent and sustainable manner.
Let's now briefly discuss our quarterly performance highlights.
By the reported numbers.
<unk> net sales for continuing operations in Q1, 2021, we're one of $1 billion down six 8% versus the year ago.
And organic net sales were down 10, 9% versus prior year.
However reported numbers this quarter don't tell the real story.
The one results were significantly distorted by COVID-19 related consumer pantry loading in the year ago quarter, having of six eight percentage point negative impact on comparisons.
And an estimated negative six four percentage points impact from lower cough cold sales in this year's quarter.
These two distorting factors also impacted the year over year EPS comparison.
Adjusted diluted EPS was <unk> 50 per share 17 cents below year ago.
Pandemic related consumer pantry loading inflated the year ago quarter by an estimated 16 cents per share.
And for that pandemic related weak cough cold sales in Q1 of this year had a negative <unk> 14 per share.
Correct.
I think the most important point to make is that the pantry load and the difficult cold cough season were known and accounted for in our projections and that Q1 results were in line with our expectations no real surprises.
Importantly, our business remains strong.
Let me give you some perspective of why I say that.
For the first two months of this year January February our sales were up three 8% on top of last year's January February that grew very strong nine 5%, but then came March 2020, and COVID-19, which drove a 73 million.
The demand surge and the 29% increase in Perrigo total net sales versus year ago, when compared to that huge month March this year declined 23%, which pulled down the entire first quarter to the minus six 8% I referred to.
If you do the math, you'll see that our apps that absent the impact of the pantry load our business would have still grown slightly for the quarter, even with this years historically weak cold coffees.
As most of that huge pantry load was reversed in subsequent subsequent months last year. It depressed second half 2020 of results. This means we should have favorable comps in the back half of this year, which is accounted for in our projections.
Another way you can see the real strength of our business unaffected by last year's pantry loading is the compare our 2021 results to 2019.
In this comparison, our two year compound annual growth rate is for 1% with our organic net sales flat, although up three 7% when excluding the impact from the historically low global incidence of cough cold and flu.
Notably this organic CAGR does not include oral care businesses as they were not a part of the pair ago in Q1 2019, and they are obviously growing.
We accomplished these results by growing market share the investing in ecommerce and launching successful new products.
The dynamics I just explained for total Paragon are basically the same for our consumer self care Americas, and consumer self care international business segments. The.
Specifics of which you can see on slide 10.
In both segments, our business is growing versus 2019, plus four 9% and plus two 6% respectively based on two year CAGR.
In both segments. The Q1 results were negatively impacted by the year ago pantry load.
In both segments Q1 results were negatively impacted by the current year weak cough cold season, and in both segments. The rest of the portfolio on average is growing.
Obviously, the year ago, pantry load and subsequent de load or one off that will have no continuing impact. So the real question is what about cold cough is that of one offer is that the new normal.
Let's take a closer look starting with slide 11.
As you know the incidents of flu activity in the U S and EU throughout 2008, the 2021 season was virtually nonexistent.
Loans were down 98% versus a year ago.
This extremely low incidence is attributed by experts.
Social distancing.
Mass for requirements stay at home orders and school closings all of byproduct of COVID-19.
The incidence of cough cold, which is more than compensating the flu and includes cough cold flu fever ear aches headaches et cetera. During the 2021 season was nearly 40% below the 10 year seasonal average.
Now that many restrictions around the world are easing the incidence of cough and cold are starting to trend up and above the prior year.
This is according to the most recent high acuity of data to be clear. This means that the historically low levels experienced the season are not expected to continue.
In fact occur.
According to estimates based on that same fan data from Ikea via the 2021 'twenty two cough cold season is expected is projected to normalize which would lead the sizable growth in our worldwide cough cold categories.
This is a contributing factor that supports our strong second half 2021 growth outlook, though we have taken a conservative approach and only built a partial recovery on cough cold with respect to our guidance.
Our deep new product pipeline also supports our second half growth expectations.
New product launches in the second half included insurgent brands such as our co packing.
Bobby Baby Formula.
Second white space brand launches such as our new probiotic probe the phy, which is launching across a number of countries in the EU.
And three new innovation in the store brand market with our launch of hypoallergenic infant formula in the U S.
And for today's announcement of our introduction of nature baseline of childrens products and the infant formula under the Burts bees brand name via license.
The burts bees organic baby Formula has recently launched and we expect the line of nature based remedies for babies and kids to be on shelves and online at leading retailers and E. Tailers later this year.
We understand our EPS forecast might look a bit back of backend loaded the some of you, but I'd remind you in a typical year before COVID-19. Our operating income has always typically been weighted towards the second half of the year and particularly towards the fourth quarter as we sell and cough cold products.
The customers and illnesses begin the spread.
This was not the case in 2020 as consumers loaded pantries earlier in the year and illnesses were at a historic low which led to a more evenly spread phasing of operating income last year than typical or normal in 2021, we expect this phasing to return to our normal.
The split of approximately 44% of our operating income in the first half and approximately 56% in the second half.
Again factors supporting this beyond history.
Is that there is no pantry load this year.
Cough cold of illnesses are expected to return to the pre COVID-19 levels and we have a number of new products launching in the second half.
The rescheduling of brand advertising and promotions back to pre COVID-19 levels and timing also benefits our forecast for the remainder of this year.
Again, we believe these factors set the stage for significant growth in the back half of this year as consumption patterns and consumer shopping trips trend back towards pre COVID-19 levels, which in fact is a trend we are already seeing in our third party consumer off take data in April.
Turning to guidance, though the first quarter numbers were down compared to a year ago as I said that was expected we.
We did a little better in the EU, a little worse in the U S, but we fared better than many of our peers.
Given the tailwind has mentioned and that we are seeing continued strength in e-commerce and increase in store foot traffic more consumers traveling again and more children expected of returned to schools in the fall we are reaffirming our guidance of over 3% organic revenue growth, 5% operating income growth.
And 7% EPS growth in 2021.
Our plus 7% EPS commitment remains embedded at the midpoint of our guidance range of $2 50.
The $2 70 per share and also remember this EPS guidance.
As before we put any of the $2 billion of cash we have at our disposal on the balance sheet to work.
So to summarize we've made tremendous progress already this year.
By completing the portfolio of reconfiguration to of pure play consumer self care leader with the growth profile in line with CPG peers that trade at much higher multiples.
The building over $2 billion of cash on our balance sheet, which will be available to drive growth.
And three creating of dialogue that might resolve the Irish tax liability.
In the coming year bottom line per.
<unk> business model is highly defensible, our self care solutions are differentiated in the marketplace and on trend our portfolio offerings are well diversified across categories and geographies.
We have world class consumer talent.
And our business fundamentals are extremely durable.
More excited than ever about the future of pair ago and the potential to create value and I am grateful to all of our teams around the world who have helped to transform our great company rest assured we are passionate about building shareholder value just as we are passionate about making our vision of reality to make lives.
<unk> by bringing quality affordable self care products that consumers Trust <unk>.
Everywhere, they are sold and with that I'll turn the call over to our CFO Ray Silcock to discuss our financial results in more detail Brian.
Thank you Marie and good morning, all.
Before getting into some of the details of our first quarter financials I would like to extend the thank you to all of our pair ago colleagues, many of whom of listening to this call today for their hard work and dedication as they continue to deliver great results. In spite of the challenges. The COVID-19 continues to bring US whether you are working in the <unk>.
Are you factoring facility for working from home. Thanks again, everyone.
In March we signed an agreement to sell our generic pharmaceutical Rx business.
And we are now accounting for as a discontinued operation.
As a consequence this quarter, we're presenting financial information for continuing operations only.
E of the CSC Americas segment the <unk>.
The international segment, and corporate unallocated and we're excluding our Rx business.
We prepared on the financial information in the continuing operations Slash discontinued operations format in accordance with accounting standard code two O five.
Because of the sale of the Rx business.
Given its key importance to perrigo is becoming a pure play consumer company.
Is the strategic shift for our company.
And also because the size of the Rx business relative to the rest of our company.
This continuing operations framework also applies to the Q1 2020 figures that you see here today, including tax information and earnings per share.
As we already said on our fourth quarter earnings call of cash generated by the Rx business will be retained by perrigo until the transaction closes.
With that let's take a look at our first quarter results on a consolidated basis, we reported GAAP earnings from continuing operations of $3 million for the first quarter of 2021, <unk> <unk> per diluted share.
On an adjusted basis consolidated net income from continuing operations was $67 million.
And diluted earnings per share from continuing operations were <unk> 50.
The 25% decline as compared to the prior year due primarily to last year's COVID-19 demand surge and then this year is historically weak cough cold season.
Non-GAAP adjustments comprised largely of the 57 million of amortization, which we always add back. We also made adjustments of $3 million for unusual litigation expenses $2 million in restructuring charges and the additionally, $5 million of transitional costs.
Related to the Rx business.
With respect to these are ex transitional costs. Once the divestitures completed these costs will either be part of the already negotiated transition services agreement to be put in place at closing or will be eliminated.
For this reason we have excluded these costs from the Q1 non-GAAP continuing operations.
<unk> excuse me presented here today.
Full details of all of these adjustments can be found in the non-GAAP reconciliation table attached to this morning's press release.
Our GAAP effective tax rate for Q1, 2021 is 84% primarily driven by eight 8 million of tax expense, which has no associated income with it. This expense was mainly the transfer of IP undertaken.
Of the pending our ex transaction.
In computing, the adjusted effective tax rate of 22, 2%. We adjusted for this expense and also for the effective tax on those non-GAAP adjustments for Q1 that I just went through.
For Q1 last year, we recalculated, the adjusted effective tax rate basis part of the continuing operations slash the discontinuation discontinued operations exercise in line with ASC two of five the Q1 tax rate was recalculated based on CSD.
The CSPI and corporate unallocated Q1, 2020 pretax income only and the recalculation of the adjusted effective tax rate on this basis for the first quarter of 2020 was 25, 8%.
From this point forward in the presentation of dollar numbers basis points of margin percentages will be for continuing operations on an adjusted basis unless stated otherwise.
Consolidated reported net sales in the first quarter of 2021 amounted to $1 billion a.
A six a decrease versus the same quarter last year.
The comparison between Q1 this year in Q1 last year is as Murray has already pointed out primarily primarily as a result of the fact that the first two quarters of both years included two specific events the combination of which had a large adverse impact on the year over year comparison, our country.
Load at the beginning of the pandemic in the first quarter of 2020 positively impacted last year's Q1 sales increasing them by approximately $73 million and that did not repeat this year than last year, and historically low cough cold season, excuse me than this year and historically low cough cold <unk>.
Season adversely impacted our Q1 sales reducing them by approximately $68 million together. These factors have an adverse effect on this year's Q1 comp to prior year of approximately $141 million.
Organic net sales for the quarter were down 10, 9%, excluding favorable impacts of $25 million, the currency and $32 million for the acquisition the acquisitions of Doctor fresh in the branded Sanofi products in the EU. There was also an.
It will impact of $14 million from divesting the Rosemont subsidiary.
Consolidated gross margin for the first quarter was 38, 8% 40 basis points higher than the prior year. Prior year. This was primarily due to favorable pricing and CSC international as well as favorable currency impacts, which helped to offset the lower sales volume.
Consolidated operating income for Q1 was $118 million $33 million lower than prior year, driven by lower gross profit flow through an increase in share based compensation, which fell into the first quarter of this year and increased R&D spend.
These adverse impacts were partially offset by lower A&P spending, particularly in the cough cold categories and by the absence of prior year's onetime frontline plant employee bonus.
Now, let's turn to the quarter specific segment results, starting with CSC Americas Cspi's first quarter reported net sales were $641 million of.
Decrease of $60 million.
From the prior year, which included a pandemic related pantry load benefit of an estimated $50 million.
The historically weak 2021 cough cold season.
Had an unfavorable impact in the first quarter of approximately $35 million, which was partially offset by the doctor fresh acquisition, which added $24 million.
Excluding the Doctor fresh acquisition year over year organic net sales declined by 11, 8%.
Gross profit in the quarter of $201 million was below prior year by $19 million, primarily due to the lower volumes, which led to unfavorable plant overhead absorption. In addition, we had higher API costs.
The active pharmaceutical ingredients that is on certain products and lower operating efficiencies in the nutrition business, which were partially offset by the addition of Dr. Fresh.
Gross margin was flat to prior year as favorable mix within the segment offset the adverse plants absorption. This was principally due to the fact that cough cold products of which we had lower sales this quarter have lower than average margins.
Operating income for the quarter was 111 million $26 million lower than prior year, primarily driven by unfavorable gross gross profit flow through plus higher R&D spend as we continue to invest in future growth opportunities.
Moving onto the consumer self care International Cspi's first quarter reported net sales of $370 million with $13 million lower than the prior year, which included an estimated prior year pandemic related pantry load benefit of $23 million.
The weak cough cold season had an estimated adverse impact on <unk> net sales of $33 million and the effect of divesting Rosemont was $14 million. These declines were partially offset by a $26 million of favorable currency impact in the quarter.
Organic net sales in the segment declined nine 1%.
The Sci gross profit was 191 million, 3% lower than prior year due primarily to the lower net sales flowing through the P&L.
Gross margin in the segment increased 30 basis points, mainly from manufacturing efficiencies.
Operating income was $60 million 4 million down from the prior year as adverse gross profit flow through was partially offset by lower operating expenses, including reduced A&P in the cough cold categories. As we brought promotional activities in line with lower sales.
Moving now to the balance sheet on a consolidated basis, continuing operations and discontinued operations combined our cash position at the end of the quarter was $481 million down.
Down from $642 million at the end of Q4 2020.
Lower sales, both last quarter and this quarter, primarily as a result of the poor 2021 cough cold season reduced our cash collections in Q1.
Additional impact on our cash during the first quarter came from increased inventory of approximately $4 million, primarily analgesics approximately $70 million that we spent for two previously contracted IP.
Stations for the Rx business $53 million of which will be reimbursed in the purchase price upon the closing of the Rx transaction.
Plus we funded $20 million in annual incentive programs in the quarter.
In closing our business remains strong reflected by the fact that we have just reiterated our guidance for 2021 in the range of $2 50.
The $2 70 per share and as Murray Explicated earlier, we continue to make strong progress on our transformation journey, where we are well ahead of our original expectations.
With that operator, we would like to open the call for questions.
Yes. Thank you.
Now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
The speaker phone please pickup your handset before pressing the keys to the.
Your question. Please press Star then two.
At this time, we will pause momentarily to assemble the roster.
And the first question comes from Chris Schott with J P. Morgan.
Great. Thanks, so much for the updates and look forward to seeing how the tax discussions go.
A couple of quick ones from me.
Gross margins for the.
For the Americas business I know there was a weak cold cough that impacted the results, but just trying to get my hands around what a normalized gross margin looks like for that business and just thoughts for the rest of the year and I guess more specifically have you been seeing margins in the 33% range or so of the past three quarters and I'm wondering if that's a decent proxy going forward.
Forward or could margins remain a bit depressed here in the near term and I said of one follow up after that.
Well.
As we said last year and the beginning of the year.
Had.
A lot of pain and lower margin gross margin was the priority I mean, the simple answer is I think it will progress back towards the 33 of the year goes on yes, yes, we really prioritize lower margin products based on societal needs rather than profits last year and now youre seeing some of the aim of cost per loss last year.
Okay.
So.
So the number of bounces back going forward as we think about the person. This year because we are we so we sold existing inventory the the spike last year started in mid March and we sold existing inventory in the first couple of weeks of the Spike, which we had a very solid effect on our first quarter, but then as we may product to replace the inventory.
Or is that we drew down at the end of March.
That was when we changed.
Of manufacturing as I mentioned, and that's why I think we're going to see the margins were hurt by that but theyre going to bounce back this year.
Okay, and then can you just talk a little bit about on the balance sheet.
Some priorities as we think about capital deployment post the Rx divestitures, I guess I just had a little bit of time since the deal was announced should.
Should we just be thinking about kind of this being potentially larger deals or maybe just a faster cadence of small transactions in and I guess, it's part of if you think youre thinking about capital deployment to the current settlement discussions I guess impact your capacity your scope of of what Youre thinking about in BD.
Thanks very much.
Yes, I mean, the answer to the last part of his is no I mean, we have.
We have significant cash we're generating cash we'll generate a lot more cash and we have.
A large revolver so.
And I'm not thinking about deals of that kind of magnitude, having said that I think you're you are focusing in on.
A difference of how I think about it versus a year ago. So good for you why we did a big one with Rainier and then we got to some smaller ones in my ideal World I mean, I'd love of another Rainier within the.
The realm of the five focused categories.
Now I'm not going to just go out there and buy anything so we're going through a disciplined approach and there are targets out there and we have evaluated a number of them first I got to get the money. So we got to close the.
They are ex Dale and that's proceeding on track.
Yes, im thinking a bit bigger and but we will remain very disciplined.
And hopefully keep up the good track record we've demonstrated.
If anything gets in the way of that we would then consider some of the other balance sheet activities, but.
But our first priority is disciplined M&A.
And probably second after that would be reducing some debt.
Okay perfect. Thanks, so much.
Thanks, David.
Thank you and the next question comes from Gregg Gilbert with tourists Securities.
Hey, Brian This is Greg Thanks, Gregg for Gregg Gilbert.
On the U S private label market for which categories would you say that private label products still have the most share growth potential the matter.
A follow up question.
I mean in the categories that we that.
We have products and I'm, assuming right so.
Our market shares and depending on where we are very we have an oral care and then and nutrition.
Half of the level of market share of penetration that we do in OTC within OTC. There are segments that are we're underpenetrated in versus others and you've heard me say this before.
Of our T. We're very highly of very high share and in many of the traditional categories.
The digestive products the.
The allergy products were all solid paying products were solid for off goldwork were solid but there are farms that we are underdeveloped in light of.
Gel tabs and things like that gel caps that represent significant opportunity. So we.
We think over the long term those segments, even in OTT sales continue to grow.
I think I'd have to get Brad the point you back to our presentation I did not trying to remember, which conference that I did which I outlined sort of what the value of each share point in each of those segments was worth but as I recall.
If you went after it carefully and methodically there was a couple of billion dollars of revenue opportunity.
Across all of our portfolios by building and increasing penetration.
Got it very helpful on the Irish cash situation I understand youre not commenting on specifics I just wanted to make sure that of hearing correctly. The east submitted a settlement proposal of the Irish revenue.
And then just a quick one for Ray when do you plan to issue of prior year results for the quarters in the year, so folks out.
Credit models for continuing ops. Thank you.
Yes, we don't have plans to do that right now.
They have to be audited and.
Bye bye bye UI by our orders as each quarter as we go forward so but we.
I think the they're going to stabilize in the second quarter or first quarter last year was with.
It was impacted by not only by COVID-19 Bruce of sales of Albuterol, you might recall, we got permission to low NGL mutual in the fab.
Early in mid February and we started in the end of the month beginning of March. So we had of what this did was the gave US a lot of a lot of the income in the first quarter last year was forex related.
So that's causing us sort of some problems as we try and lay out of the tax for each quarter, but I would expect it to stabilize in the second quarter and you will be able to use that second quarter number.
The forward into into the rest of the year for the last year.
And the answer to the other question is yes.
Thank you.
Yes.
Thank you and the net.
Next question comes from David Steinberg with Jefferies.
Hey, David.
Okay. Thanks, it's.
Three questions first on cough cold.
You're obviously betting on a better year in the fall.
And I was just curious the acuity of fan forecast.
The obviously could not in the forecast this past year, but in previous years, how close to the Mark was their forecast and then I think you said, you're expecting sort of the lower end of the range for the outlook.
I guess, how confident can you be in that outlook given the outlooks in the past since it's a rebound so important secondly.
Are you seeing any increased presence from OTC manufacturers like Dr. Reddy isn't in the smoking cessation of other categories, where they've launched products or Conversely, less less competition and then finally.
Could you just discuss the ecommerce trends you've been seeing I know you've had some recent momentum in that area in the up to close to 10% of the aggregate sales now in the E Commerce.
Sure.
Let me do them one at the time cough cold I think we're being conservative, but just to be clear IQ via and their estimates of flu have historically been.
Very accurate.
It's sort of the trusted source the.
Fan day of the methodology is patient level data, which is HIPAA compliant and it's the largest longitudinal data set available in tracks over 306 million people in the U S.
The band program captures the live feed from health care providers on patient business on actual physician diagnosed symptoms and the data is projected using the current census day to day, each DMA region total U S by adult and pediatric down to the symptoms. So it's <unk>.
Our best source and in the year I've only been in this business on this side of consumer packaged goods into the the health care self care over the past few years, but it's been right on as far as I've seen predicting the strong 2019 cold cough seasons of the allergy season.
I think it's pretty predictive and theyre not the only ones.
There was the article I saw come out over the weekend net for from NBC predicting a very high.
Flu season in the upcoming year, because with all of the Lockdowns People's immunity levels are are down so.
Some are forecasting not even just the normal season, but a very strong one but to be clear what pair ago did alright, okay.
Okay. So we know we can be we cant be any worse than zero there was <unk>.
99% decline there were no flu basically around the world. This year. So everything is got to be upside I think you would agree to that.
Going all the way to normal would be of big bet. So we've been more conservative that and I don't remember the exact number but we're roughly halfway between what where it was then.
What normal would be so to me the way we forecasted it that's an upside to our plan not a downside to our plan.
The e-commerce numbers.
And while I am answering the excellent Brad if you add the the actual growth numbers for ecommerce, but I do believe it.
Right now it's still in that same tender of 11% of <unk>.
It's slowed somewhat.
<unk> had.
A resurgent.
Resurgence of people in store, which for US and of private label business is a good thing where where a lot of the price value comparisons are the reality is I think we've done better than.
Any of our competitors because we invested early in the E com and we're a leader, but our shares are still lower there versus the national Brown than they are in and in store and we'll build that over over time and I think it's logical right. Because you can make the in store comparison, you'll see that price right away and.
People switch and we're trying to get that done online.
But given that it's I think it's still a comparable number.
Probably 10% that 10% to 12% range and Brad jump <unk>.
Off a little bit on that.
Youre right.
Overall cost of the entire business E comm from about 52% compared to last year of little bit higher than Americans.
And a little bit lower in high but about 52% overall.
Okay. Thanks.
I know the question was on E comm, but I do think it's worth, noting and I elaborating a little more than you even asking the question but.
I personally believe that the at least in the U S. The program of Vaccinating in Drugstores, and then in supermarkets and then.
And Walmart and target for all of that has probably been the.
For the single biggest factor in bringing people back in stores and recreating in store traffic and it sort of forced people back into the stores, where they looked around and said Oh.
I guess, it's okay I can come in here and start shopping again so.
There is no.
Upbeat on the business I know the first quarter was a challenge, but boy I look at the second half of the cough cold upside and people starting to live their normal lives again as they get vaccinated.
And a lot of pent up money.
Money in their checking accounts and all of it.
That I.
I think youre going to see a roaring second half not for the pair ago, but for the.
For the entire economy.
Okay. Thank you and the <unk>.
Next question comes from Elliot Wilbur with Raymond James.
Thanks, Good morning, just wanted to get some clarification around the gross margin.
Excuse me the gross margin profile of the cough cold line outside of some of the music ex products I would assume that the much lower margin line than the overall average for the consumer segment, maybe that's an incorrect assumption, but just some clarification on how the.
That may have impacted margin performance in the.
Quarter, and then just a couple of follow up financial question for Ray specifically on operating cash flow.
Could you just give us a sense of what the Rx business contributed to the result in the quarter and I don't know if you have the number in front of you, but if theres any way to break out separately depreciation.
For that business. So that we can model consumer on more of an EBITDA basis going forward that would be helpful. Thanks.
It's doing that just to be clear, our gross margins were up versus year ago in the.
In the first quarter and relative to Chris's question of the beginning I think you'll see them continue to progress and grow for free.
From here, but.
Cough cold I think youre right in general I think there are a little bit lower of AR.
Gross margin.
<unk> commented in my prepared remarks, we saw the mix favor ability because.
We had lower sales of lower margin products and some of our.
And the ibuprofen.
And the.
Thanks.
Products.
Low margins on them.
Especially those large bottles and so forth. So thats. The fact I mean, we saw we saw but ironically, we sort of favor ability from that.
In the first quarter.
Yes. So there is sort of really are kind of a split answer.
If youre listening on the call.
Gross margin of good or bad we think it's progressing this is the first one of the first quarters where of across the board. We saw gross margins increase as a result of.
Programs that we've put in place on SKU rationalization et cetera, and then is the mix progresses through the year.
Thank you will see it grow back up again.
In the U S to the to.
To the levels that Chris had mentioned closer to the 33 range.
On the operating cash flow you asked about our ex and I think the answer to the question is.
Around 2019 of half of $20 million.
The Q1 positive contribution.
The positive cash flow, which is obviously a lot lower than we would normally see and there were some specific reasons for that in the if it were not going to really get into discontinued operations at this point.
Okay.
Thank you and the next question comes from David David Risinger with Morgan Stanley.
Hi, This is from the leanest santoro on for Dave.
Two questions can you add more color on why the operating cash flow was weak in the first quarter and maybe talk about what the outlook what outlook is for the full year.
For cash flow and also can you help us understand where the the $70 million of the accurate asset acquisitions in the quarter was revenue contributing thank you.
So the answer is of the second question is no not significantly if at all.
Our ex acquisitions they were pre.
They were basically.
They had been pre approved but they were related to.
Yes.
We're going to get the cost of them back, but they had no significant impact on our results for the month of apart from that factor.
So the operating cash flow I think I went through in my prepared remarks, some of the reasons why.
The.
We had that we had we had had an impact.
On the.
On the balance sheet I mean, the biggest single item was that we grew our inventories and that was the loans that was analgesics.
That related to the poor cough cold season and related lower sales.
We expect the push that through obviously as we go forward in the year.
With the hope to get those inventories down to them.
We were expecting of normal pretty well normal cashier I mean, this first quarter had a number of factors, but just to be clear on that one question. You asked about Rx that was when we described the sale as a part that was cash and other considerations that is because we knew the timing of these R&D activities.
Out of third party person that we had the pay we're going to occur we didn't know whether it before before or after we close since it's before we close now of the purchase price will be adjusted up for.
For the bulk of those it's not exactly but it's I think it's back to the numbers, we had talked about when we announced the.
The sales so.
It is now going to be all cash at 15, 50, or whatever something like that there'll probably be some other smaller adjustments.
Yes, and the other reason is that we.
Our fourth first quarter ended.
So April I think the third of April So we had some we had to fund the employee bonus program.
Which was a little over $20 million of that was outside of our cash flow in the first quarter.
But we get that back obviously of the balance of the year.
Okay.
Thank you and this concludes our question and answer session I would like to turn on cross back over to the company for any closing comments.
Yes.
This has been an interesting journey over the past couple of years and there's been some ups and downs, but I do really feel like it's all coming together.
At the moment.
I feel like the team has is in place and engaging and demonstrated the hell. They can manage through adversity last year end and is consistent the new products are flowing outside of the company, we're doing branded deals more private label.
<unk> got a strong track record in M&A pulled off the.
The difficult.
Deal with with our ex then and that will put us purely in the consumer world in.
And while we I am sure there is still a long way to go but it's.
We're finally getting to the point, where I think we will make major ground this year on.
The overhang issues as well, which was my hope going into this year.
Couple that with what should be easy comps in the second half of the year and a strong strategy and a big war chest. I think this is the inflection point for for Paragon.
And it's time for us to start building some meaningful value in and I think we are in the position to do so so thank you for your interest in parallel.
Thank you the.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.