Why did Perrigo (PRGO) rally three bucks in yesterday's session? There was no news that spurred the stock of the maker of knock-off products higher. There were no releases about new medicines going generic, which has at time spurred the stock, or about gigantic off-patent ramp-ups. No late cold and flu season.
But I have an idea about what might be on the minds of those who were buying it.
Chinese vitamin supplements, that's what.
On the last conference call, Perrigo had the company miss its numbers for a variety of reasons including a weak cold and flu season and the timing of certain product launches. But it was also wounded by price competition in the vitamin and mineral supplements business.
Remember, Perrigo makes a lot of store-branded products. The retailers love Perrigo because the margins are much better on their store brands than on the nationally branded products, and Perrigo has been a trusty supplier.
Typically, Perrigo, when it does miss the quarter -- and it has a couple of times in an otherwise pretty stellar run -- doesn't complain. Not this time. Joe Papa, the CEO, said on his call that the pricing pressure is not letting up and it's coming from vitamins made in China. But not just any vitamins. To quote him: "this is a product coming in from China into the U.S. that at this time we do not believe it is properly labeled 'Made in China' and it is being sold in the U.S. "
Papa went on to say "that is something we do think will get resolved, but I don't want to put a specific time on it because things like that take a long time." When he came on Mad Money recently, I pressed him about these Chinese products but he demurred.
Now I am thinking, post this Lumber Liquidators (LL) story about potentially carcinogenic levels of formaldehyde in flooring, that maybe it won't take that long a time after all.
Right now I think the country's getting spoiling mad about this stuff. The 60 Minutes report on the Chinese goods that may or may not have been up to snuff was tough enough that it might set back Lumber Liquidators for a very long time. Lumber Liquidators sourced American and sourced Chinese, but you can bet after the drubbing its company and its stock have suffered in the last week, they wish they never heard of China.
Now I am wondering if anyone from a major drug store or vitamin chain is thinking that they could be next if people find out that they have been selling Chinese products and pretending or obscuring the origin. The laws are murky about what has to be posted. You don't see a lot of Chinese flags on anything you eat or drink or your pet eats for that matter, although you certainly see American flags on the latter after the Chinese jerky incident that got so many pets sick a couple of years ago. The FDA's ongoing investigation of jerky imported from China that has caused the death of more than 1000 dogs is ongoing, but earlier this year Petco pulled the Chinese product off its shelves.
I am wondering after the scandal involving Chinese drywall that caused respiratory problems, the 2007 Mattel (MAT) recall of almost one million toys because the Chinese used paint with lead in it, or after the Chinese pet food debacle and now the Lumber Liquidators taint, whether someone isn't about to blow the whistle on the Chinese vitamin supplements that we think are American. When they do, the first thing that will happen is you can see raised numbers at Perrigo, because its vitamin plants are in the U.S. and are fully compliant. Someone's selling Chinese vitamins on the cheap and are hoping to get away with it.
In this day in age, and after the downfall of Lumber Liquidators, all I can say is "good luck" to those who are obscuring the origin of vitamins from China, because I bet 100% of the Americans buying them who watched 60 Minutes Sunday or have pets and know not to buy Chinese dog food would turn on that store on a dime, unless they switched to Perrigo fast enough that they hope no one will notice.
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