Hendrickson to lead Perrigo as it wrestles with challenges in European operations

ALLEGAN — John Hendrickson assumed command at Perrigo Co. plc as the company faces problems in Europe that will cut into 2016 earnings.

A number of brokerage firms downgraded Perrigo (NYSE: PRGO) shares after the resignation of former Chairman and CEO Joe Papa, who left the company to lead Quebec-based Valeant Pharmaceutical Inc. The downgrade also came as Perrigo significantly reduced its earnings guidance for the year.

“While we believe Hendrickson to be the appropriate executive to lead the company through its transition and optimization, there are clearly multiple pressures that will likely hinder near-term growth,” Stifel analyst Annabel Samimy wrote in an April 25 memo that downgraded Perrigo shares from a “buy” to a “hold.”

Two days earlier, Perrigo directors quickly named John Hendrickson as chief executive officer following Papa’s resignation. The leadership change comes as Perrigo projects lower-than-expected earnings for the first quarter because of problems in Europe connected to the $8.6 billion acquisition a year ago of Belgium-based Omega Pharma NV that recorded a large loss for 2015.

“The move by the Board to install an internal figure with in-depth understanding of the PRGO business will be critical in keeping the business running on all cylinders and streamlining the PRGO/Omega business,” Samimy wrote. “However, Papa leaves Hendrickson with some clear challenges, notably that of the Omega/(Branded Healthcare) business, which is a good platform but clearly with assets that are underperforming expectations.”

Hendrickson has been with Perrigo since 1989 in a series of executive positions. Since October, he’s served as the corporation’s president.

Hendrickson previously served as executive vice president of global operations and supply chain from 2006 to 2015. He was executive vice president from 2003 to 2006 of the Consumer Healthcare division, which accounted for more than half of Perrigo’s $5.35 billion in sales in 2015.

“John is an exceptional leader who is passionate about our mission, committed to our core values, and with his breadth of experience, is uniquely qualified to successfully lead Perrigo into the future,” Laurie Brlas, an independent director at Perrigo, said in a statement. Brlas was elected Perrigo’s board chair in the wake of Papa’s departure.

“He has made exceptional contributions to the business during his 27-year tenure, including leading our U.S. Consumer Healthcare business, and we are confident that he has the industry expertise and the operational track record to continue to drive growth,” Brlas stated.

Brlas has been a director at Perrigo since 2003. She’s executive vice president and chief financial officer of Greenwood Village, Colo.-based Newmont Mining Corp. 

David Flanagan, a professor of strategic management at Western Michigan University’s Haworth College of Business, believes that as Perrigo seeks to turnaround the Branded Healthcare unit in Europe, works to improve the slower revenue and earnings growth, and moves forward with a new CEO, “operationally they will be OK.”

“They have succession plans and have hired an insider so there will be continuity. I don’t think they have systemic problems other than over promising on results,” Flanagan wrote in an email to MiBiz. “My only other nagging worry is that their cost cutting may have cut some ‘meat’ that could hurt them in the long run.”

Hendrickson’s “operational expertise and insider knowledge make his appointment a smart choice,” an analyst from Jefferies wrote in a memo to clients, according to TheStreet.com. However, the new CEO is a “relative unknown among the investment community” and has not previously served as a top executive.

As Perrigo announced Papa’s departure and Hendrickson’s appointment, it lowered full-year earnings expectations to between $8.20 and $8.60 per share. The lower guidance is “based on preliminary estimates” and compares to adjusted net income of $7.59 per share in 2015.

In reporting 2015 results in February, Perrigo projected 2016 net income of $9.50 to $9.80 per share. The company last week attributed the reduced guidance to “pricing expectations in our Rx segment due to industry and competitive pressures in the sector.”

“The remainder of the reduction is primarily due to weaker-than-expected performance within the (branded consumer health care) segment for the next three quarters and lower expectations for consolidated new product launches,” Perrigo said in its statement.

The Dublin-based Perrigo, which maintains a headquarters in Allegan, plans to release first quarter results May 12. The company projects quarterly net sales to reach $1.33 billion to $1.35 billion with adjusted earnings of $1.71 to $1.77 per diluted share. In the January-to-March period in 2015, Perrigo had net sales of $1.05 billion with a $94.9 million net loss driven by charges related to the Omega deal. 

Perrigo’s statement also cited an impairment in the Branded Consumer Healthcare division in Europe from the acquisition of Omega.

“The company is in the process of assessing whether and to what extent an impairment exists and expects to complete its assessment and determine any impairment by May 12,” the company said in a statement. “At this time, the company cannot estimate the range of the possible impairment and any such charges could be material and have a significant impact on the company’s financial results.”

The Branded Consumer Healthcare division generated $1.02 billion in revenue in 2015 and recorded a $128.6 million operating loss. The division had an operating loss of $159.7 million in the fourth quarter alone on revenue of $325.7 million.

Perrigo’s announcement also noted its Nominating & Governance Committee decided to withdraw the nomination of Omega’s founder, Marx Coucke, for re-election to the Board of Directors. 


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