Perrigo Co. Plc Q3 FY2024 earnings call

Management Statement and Operational Highlights

• One Perrigo Initiatives: Building a unified global operating platform with one optimized organizational structure, operating model, way of working, unified enterprise technology network, and focused portfolio. Appointed new Chief Brand and Digital Officer and permanent General Counsel.
• Accretive Initiatives: Project Energize achieved $95 million in gross savings year-to-date. Supply Chain Reinvention program delivered $32 million in gross savings year-to-date, with gross margin expansion and increased U.S. OTC service levels.
• Infant Formula: Completed self-remediation, improved service levels across retailers, and started sales activation with store brand volume share of non-WIC powder increasing 160 basis points.
• Innovation: Leveraging GLP-1 trends for OTC solutions, with retail activation of related programs starting later in the quarter.
• Three-S Model: Stabilizing key business areas (e.g., infant formula, U.S. Store Brand), streamlining operations, and strengthening long-term foundation by prioritizing free cash flow and delevering.

Segment Performance

• CSCI (Consumer Self-Care International): Organic growth in the quarter was +1%, driven by positive 3.5 percentage points from the Upper Respiratory, Skin Care and Women's Health categories. Record quarterly operating income included benefits from accretive initiatives, lower variable expenses and favorable pricing.
• CSCA (Consumer Self-Care Americas): Organic net sales declined 4.4% primarily due to lost distribution in U.S. Store Brands. However, sales of U.S. brands, including Nasonex and Prevacid in addition to Opill were significantly higher compared to the prior year. Operating income for CSCA grew double-digit versus prior year due to infant formula business recovery, benefits from accretive initiatives and favorable store brand mix.

Guidance

• Reaffirmed 2024 adjusted EPS range of $2.50 to $2.65.
• Expect adjusted gross margin between 39% to 40% and meaningful year-over-year adjusted operating margin expansion.
• Full year adjusted effective tax rate expected to be 19% to 20%, slightly lower than before.

Risks

• Competitive dynamics in the infant formula branded business, including impact on contract business performance.
• Potential impact of channel shifts and regulatory changes on sales and margins.
• Uncertainty around the performance of the contract business in the infant formula segment.

Question and Answer

Q: On Infant Nutrition business ramp in fourth quarter and 2025 expectations A: Eduardo discussed store brand progress, contract business dynamics, and margin expectations, noting store brand share recovery and contract business monitoring due to new player dynamics.

Q: On Opill trends and expectations A: Patrick talked about Opill's growth, awareness, trial, and repeat rates, with expectations of continued growth in 2025, though not expecting immediate EPS accretion.

Q: On restructuring programs and investments A: Eduardo discussed reinvestment in R&D, A&P, and operational efficiencies as part of Project Energize and Supply Chain Reinvention.

Q: On cough/cold season and U.S. OTC business A: Patrick mentioned relative insulation of the U.S. OTC business to cough/cold season and neutral effect of channel switching.

Q: On customer controls and margin impact A: Eduardo discussed margin accretive actions related to exiting low-margin customer parts and expected improvement in margins in 2025.

Q: On infant formula feedback and market position A: Patrick discussed store brand share recovery, poundage mapping aligning with expectations, and market dynamics including new player impact on branded business.

Q: On 2025 EPS pushes and pulls A: Patrick and Eduardo discussed category growth, business wins, competitive dynamics, and variable expense expectations for 2025.

Q: On price gap and innovation pipeline A: Eduardo discussed price gap trends and Patrick talked about innovation focus, including reduced innovation count with larger NPVs and focus on consumer-preferred solutions.