Mallinckrodt plc (NYSE: MNK), a global specialty pharmaceutical and medical imaging business, today reported results for the first quarter of fiscal 2014, which ended December 27, 2013. The company also announced revised guidance for fiscal 2014.
Net sales were $540.2 million for the first quarter of fiscal 2014, an increase of 7.2%, compared with $504.0 million reported in the first quarter of fiscal 2013. Operational growth was 8.0% as movements in foreign exchange rates negatively impacted net sales.
On a non-GAAP basis, adjusted net income for the first fiscal quarter of 2014 was $51.2 million, compared with $37.6 million a year ago. Non-GAAP adjusted diluted earnings per share were $0.88, compared with $0.65 in the same quarter a year ago.
On a GAAP basis, net income for the first quarter of fiscal 2014 was $45.6 million, or $0.79 per diluted share, compared with $19.2 million, or $0.33 per diluted share, in the year-ago period. The increase in net income reflects increased net sales and profits in the Specialty Pharmaceuticals segment, lower separation costs following the spin-off from the company's former parent and a lower effective tax rate that reflects Mallinckrodt's structure as an independent company. These results were partially offset by restructuring charges incurred in the quarter.
"We're off to a strong start in fiscal 2014, with solid momentum and operational growth of 19.1% in our Specialty Pharmaceuticals segment," said Mark Trudeau, Chief Executive Officer and President, Mallinckrodt. "Our first quarter results fully demonstrate the strength of our specialty generics products performance, and these outcomes, combined with effective restructuring efforts, are driving strong sales and improved profitability, leading to our decision to raise guidance for full-year revenue and adjusted diluted earnings per share. We'll continue to accelerate our growth in the Specialty Pharmaceuticals segment through our pipeline assets, as well as business development and licensing opportunities that are complementary or adjacent to our existing businesses or channels."
Gross profit was $255.6 million for the first quarter of fiscal 2014, compared with $233.5 million in the prior-year period, representing an increase of 9.5%. Gross profit, as a percentage of net sales, was 47.3% for the quarter, versus 46.3% in the prior-year period.
Selling, general and administrative (SG&A) expenses for the first quarter of fiscal 2014 were essentially flat at $146.2 million, compared with $146.8 million in the same period in 2013. Higher internal and third-party expenses associated with being an independent, public company were offset by certain prior-year costs that did not recur in the three months ended December 27, 2013. SG&A expenses as a percentage of net sales were 27.1% in the first quarter of fiscal 2014, compared with 29.1% in the prior year.
R&D expenses for the first quarter of fiscal 2014 were $39.0 million, compared with $38.4 million in the prior-year period. R&D expenses as a percentage of net sales were 7.2% in the first fiscal quarter of 2014, compared with 7.6% in the prior year.
Separation costs for the first quarter of fiscal 2014 were $2.2 million, compared with $12.0 million in the prior-year quarter. Separation costs decreased following the spin-off from the company's former parent.
Restructuring charges were $8.0 million for the first quarter of fiscal 2014, compared with $0.2 million in the prior-year quarter. The increase primarily reflects activities under the previously announced $100 million to $125 million restructuring program.
The first-quarter fiscal 2014 effective tax rate of 26.3%, or 27.2% on a non-GAAP basis, is calculated on a stand-alone company basis. The 46.3% tax rate for the prior-year period was calculated reflecting the business as historically managed as part of the former parent.
BUSINESS SEGMENT RESULTS
Specialty Pharmaceuticals Segment
Net sales in the Specialty Pharmaceuticals segment for the first quarter of fiscal 2014 were $309.5 million, an increase of 18.9%, compared with $260.2 million in the prior-year period. Operational growth was 19.1%. Net sales in Brands were $59.6 million, compared with $46.6 million last year, led by net sales from EXALGO® (hydromorphone HCl) Extended-Release Tablets, CII. Net sales in Generics and Active Pharmaceutical Ingredients (API) were $249.9 million, compared with $213.6 million last year, primarily driven by net sales from Methylphenidate HCl Extended-Release Tablets, USP CII (Methylphenidate ER) and the net benefit from pricing actions on certain specialty generics products.
Segment operating income in the quarter was $113.0 million, compared with $35.0 million last year. Segment operating margin was 36.5%, compared with 13.5% last year, reflecting growth in higher-margin product lines and portfolio additions, as well as operating leverage due to strong sales growth. Highlights for the quarter include the following:
Net sales of Methylphenidate ER were $56.3 million in the first quarter of fiscal 2014. Net sales in the first quarter of fiscal 2013 were $9.3 million following the product launch in December, 2012.
Net sales of EXALGO were $36.2 million, compared with $29.3 million last year, up 23.5% over the first fiscal quarter of 2013, due to pricing actions in late fiscal year 2013.
Global Medical Imaging Segment
Net sales in the company's Global Medical Imaging segment were $218.6 million, versus $229.7 million in the first quarter of fiscal 2013. Net sales of Contrast Media and Delivery Systems (CMDS) were $111.6 million, compared with $121.4 million in the prior year, due to continuing price pressures. Nuclear Imaging net sales were $107.0 million compared with $108.3 million in the prior year.
For the fiscal first quarter, operating income in the segment was $4.4 million, compared with $49.1 million last year. Operating margin was 2.0%, compared with 21.4% last year, reflecting the negative impact of higher raw material and production costs in Global Medical Imaging in addition to lower net sales.
FISCAL 2014 OUTLOOK
Guidance: Mallinckrodt is providing updated guidance for fiscal 2014, which is summarized below in comparison to the previous guidance issued on October 16, 2013 (excluding foreign currency impact).
CONFERENCE CALL AND WEBCAST
Mallinckrodt will hold a conference call for investors on Thursday, February 6, 2014, beginning at 8:30am/U.S. Eastern Standard Time. This call can be accessed in three ways:
At Mallinckrodt's website: http://investor.mallinckrodt.com.
By telephone: For both "listen-only" participants and those participants who wish to take part in the question-and-answer portion of the call, the telephone dial-in number in the U.S. is 866-318-8614. For participants outside the U.S., the dial-in number is 617-399-5133. The access code for all callers is 81312057.
Through an audio replay: A replay of the call will be available beginning at 12:30pm/U.S. Eastern Standard Time on February 6, 2014, and ending at 11:59pm/U.S. Eastern Standard Time on February 13, 2014. The dial-in number for U.S. participants is 888-286-8010. For participants outside the U.S., the replay dial-in number is 617-801-6888. The replay access code for all callers is 83253336.