Perrigo Earnings: Sales Keep Slipping, but Recovery Underway; Second Half May Show Improvement

No-moat Perrigo reported soft second-quarter earnings that came in a notch below our expectations. Total sales of $1.1 billion were down 10.7% year over year, or 9.1% organic, as the troubled infant formula business and tepid demand for pain and respiratory products weighed down the top line. Nutrition (where infant formula sits) was down almost 50% during the quarter and made up about three quarters of the total sales decline. Infant formula continues to suffer from an ongoing plant remediation plan, and volume for the first month of the quarter was about half of last year’s. Pain and respiratory was challenged from a mix of low seasonality and inventory de-stocking from certain US retailers. This looks to be a marketwide issue, though, as we’ve seen some competitors report similar narratives so far during this earnings window. This, coupled with losing one US retail customer for store brand distribution, led the firm to revise full-year sales guidance from flat to down 4% at the midpoint. After lightly trimming our near-term assumptions, we lower our fair value estimate to $35 per share from $36.