Q4 2021 Perrigo Company PLC Earnings Call

[music].

Good morning, and welcome to the Paragon <unk> fourth quarter and fiscal year 2021 financial results Conference call.

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After todays presentation, there will be an opportunity to ask questions.

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Please note this event is being recorded.

I would now like to turn the conference over to Brad Joseph VP of Investor Relations. Please go ahead.

Thank you Chad and good.

Good morning, everybody and welcome to Paradise fourth quarter and fiscal 2021 earnings conference call.

Hope you all had a chance to review the earnings press release, we issued this morning, a copy of the earnings release and presentation for today's discussion are available within the Investor section of the Paragould Dotcom website.

Joining today's call are president and CEO , Murray Kessler, and CFO Ray Silcock.

I'd like to remind everyone that during this call participants will make certain forward looking statements.

Please refer to the important information for shareholders and investors and Safe Harbor language regarding these statements in our press release issued earlier this morning.

Quick housekeeping notes first unless stated all financial results discussed and presented are on a continuing operations basis. They do not include any contribution from the divested Rx business, which was accounted for as discontinued operations prior to itself and.

In addition to other non-GAAP adjustments as described in the appendix adjusted profit measures, including adjusted EPS and adjusted operating income excluded from the prior year period certain costs incurred to support the operations of the Rx business, which were reported in continuing operations. Please see the appendix for additional details and reconciliations of all non-GAAP .

Financial measures presented.

Second organic growth excludes acquisitions divestitures and currency in both comparable periods and third Murray's discussion will be focused solely on non-GAAP results and with that please turn the call over to Murray.

Thank you Brad and good morning, everyone.

First and foremost I'd like to start this call by acknowledging and thanking the Perrigo team 10000 strong no matter what COVID-19 related adversity has been thrown their way over the last two years from locked down to a multiple common variants to cough cold impact of supply chain disruption that capital.

And inflation running providing society with essential products and they did so without having to shut down a single shift during the last two years in any one of our manufacturing facilities worldwide and credit.

I also wanted to take a moment to acknowledge our Ukrainian colleagues that are in the midst of the horrible unprovoked invasion by Roger our Hearts and support are with you.

They were part of the entire Perrigo team that helped US complete our transformation to a consumer self care company in 2021, despite the pandemic disruption by accomplishing our three largest strategic milestones first selling the generic Rx business for $1 six.

<unk> billion, which dramatically lowers volatility in places consumer South Carolina as our sole strategic focus.

To redeploying the Rx sale proceeds by announcing our agreement to acquire HRA pharma, a rapidly growing consumer self care company with a portfolio of leading brands.

For $1 8 billion euros.

We estimate HRA will add 400 million euros in revenue and 150 million euros in operating income in 2023, and three favorably settling the $1 6 billion Euro Irish tax Noah.

It had been a significant overhang on the company since I joined three years ago.

This tax assessment costs, the company $3 billion or more including interest and penalties.

We settled for 266 million euros and this issue is now completely resolved and behind us and we paid for the settlement using the proceeds from a favorable $355 million Euro Arbitration Award.

As a side note we had some late breaking news on the 370 million dollar interest rate deductibility notice of proposed assessment that notebook we received from the IRS in may of 2020.

After a number of discussions with the IRS the <unk>.

Taxes estimate has been lowered from $370 million to $130 million.

That doesn't mean, it will end up being $138 million as we will continue to vigorously defend ourselves on the technical merits, but it does mean the risk is dramatically reduced and this is just another example of our determination and success clearing the decks of all major overhangs, while protecting shareholder value.

With these major achievements behind US Teradata is now a pure play consumer self care company poised for strong growth unencumbered by major overhang so in the past.

Furthermore, peridot has been returning to a company that is consistently growing its top line.

In fact, our consumer businesses have grown 3% on a compound annual basis over the past three years. Despite the historically weak 2021 cough cold season, remember Costco related products represent nearly 20% of our total business, but for that our CAGR would have been even stronger but foster.

3% is still solid growth, especially compared to the prior three year compound annual growth rate of minus 1% prior to our transformation.

While our big three strategic priorities were accomplished and we have returned to consistent top line growth. Our original 2021 financial objectives were not met although earnings did finished just above the midpoint of our revised guidance.

On a total year basis, adjusted EPS finished at $2 6 million down 12% versus a year ago due to last year. So historically weak cough cold season, and its impact on manufacturing productivity, along with severe material price inflation and supply chain disruption in the second half of the year These factors, including the.

A step down in margin due to sales to the divested Rx business negatively impacted fourth quarter gross margin by roughly 400 basis points, which is basically the thing thats, most leading CPG companies.

I'm encouraged by our fourth quarter metrics and how we exited the year. However, fourth quarter net sales grew 5% adjusted operating income increased 12% and adjusted diluted EPS increased 28% versus a year ago as higher gross profit new products and lower operating expenses.

Overcame industry headwinds.

Fourth quarter net sales growth was driven by one a return to strong cough cold demand evidenced by 28% growth in our upper respiratory or upper respiratory reporting category, which also proposed the allergy.

212% growth in nutrition.

And share gains in USA formula and the successful launch of new products in rural electrical is in fact, one of our new adult electrolyte drinks one the product of the year Award.

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As voted on by wanted.

Largest customers that we have and it's a tremendous recognition for the efforts of the paradox.

And three lastly, fourth quarter growth was also the result of strong contract pack sales, including sales to the divested Rx business.

Also encouraging is shown on slide 10, Paragon sales growth accelerated sequentially each quarter of 2021, as COVID-19 related disruptions either slowed or Murray.

Addressed by the Teradata team.

This positive trend has continued into January and February of this year.

We entered 2022 with strong topline momentum and strong global consumer demand.

Markets, we compete in the USA, we are up in the fourth quarter and 17, 5% for OTC 24, 7% for nutrition, and plus nine 1% for oral care and in Europe demand for our essential products were plus 33% and plus.

<unk> for our self care products.

We also entered 2022 with most major topline headwinds behind us.

Higher illnesses and the increased spread at the Omnicom area, which tends to cause a traditional cold and flu like symptoms.

Has contributed to a significant rebound in cough cold sales.

Customer inventories, which were a bit heavy in 2021 due to the weak cough cold season have been worked down to normal levels and we have taken numerous supply chain and logistics logistics corrective actions, allowing us to ship our products.

At a higher cost.

And I'm proud to say, we enter 2022 with a robust offering of innovative new products as shown on slide 13.

For all of these reasons, we expect strong top line growth in our business in 2022 and to be clear that is before any additional net sales from the HRA acquisition.

We're mentioning HRA sales and earnings growth was robust in 2021 and was in line with our expectations.

While the top line should be strong year over year gross margin pressure will continue to work back the first half of 2022.

We expect gross margin pressure to ease in the second half of the year as we start to receive the financial benefit from normalized cough cold sales certain input costs, starting to ease our pricing actions being fully implemented and the negative margin on the impact from the Rx divestiture annualize.

To be clear, we expect relatively flat gross margin in 2022, excluding HRA with the second half.

Stronger than the first.

Once the deal closes the HRA will be further accretive to our second half gross margin given it is a substantially higher gross margin than our products.

All of this leads us to an adjusted EPS guidance range of $2 10 to $2 30 per share driven by organic net sales growth of an estimated 7% to 8%.

Assuming the acquisition of HRA closes on June 30, we would expect it would add an additional $170 million to $190 million in net sales and approximately <unk> 30 of adjusted diluted EPS to our base pair ago guidance.

Please note. This guidance does not include any potential impact from the Russian invasion of Ukraine.

Our 2022 guidance includes BT.

We intend at $15 million of operating income from these two countries two months of which though have already been realized but it's really too early to estimate the potential full year impact and frankly, our top priority right now is on the safety of our colleagues and their families in the rich.

Looking at the path ahead, we believe we are poised to create significant value and it is clear what needs to be done to make that happen.

First.

Continue to execute on the self care strategy and continue to deliver organic growth, including recovery of cough cold strong digital growth and rapid innovation.

Second <unk>.

Successfully close and integrate HRA, which will provide a step change increase in sales income margins and EPS and third stabilized and then aggressively grow gross margins through our global supply chain redesign project, which will occur concurrent with the <unk>.

Ray integration.

So in conclusion.

We are excited about the opportunities over the next few years and beyond as the company is well positioned for success.

The same time, we are planning pragmatically given the challenges in the current environment.

It remains our goal however to complete the job and deliver our original objectives from our Investor Conference three years ago.

With that I'll turn the call over to Ray Silcock to discuss the financials in more detail.

Thank you Barry and good morning, everyone before starting I would like to reiterate <unk> earlier comments about the very significant milestones the perrigo team accomplished during 2021.

These accomplishments would not have been possible without the hard work of our colleagues across the globe.

Sincere thank you to the Perrigo team.

I'd also like to add my own heartfelt concern over the situation in Ukraine and repeat that we will continue to support our Ukrainian colleagues and their families.

Now having achieved these major strategic objectives, we are intently focused on driving long term profitable growth so with that let's take a look at our fourth quarter and full year 2021 results in greater detail with a focus on the full year.

For the fourth quarter of 2021 on a consolidated basis, we reported earnings from continuing operations.

$32 million.24 per diluted share.

Q4, adjusted net income from continuing operations amounted to $82 million.

Or <unk> 60 per diluted share.

For the full year on a consolidated basis, we reported a loss from continuing operations of $131 million for 2021 or 98 per diluted share.

On an adjusted basis consolidated net income from continuing operations was $278 million and.

Diluted EPS from continuing operations was $2.06 a share down 11, 6% as compared to the prior year.

The adjusted EPS decline versus prior year is primarily from lower operating efficiencies user adds.

First plant overhead absorption as a result of lower volumes in particular lower volumes of cough cold products.

As well as higher material and freight costs in the year. These results were partially offset by lower operating expenses, including reduced advertising and promotion spend and ongoing project momentum cost savings as well as price increases.

2021, pretax non-GAAP adjustments totaled $97 million prior.

Primarily from adding back one amortization of $260 million, which we always add back two impairment charges of $173 million related to the recently announced divestiture of our businesses in Mexico, and Brazil $352 million and unusual litigation.

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For $38 million in acquisition expenses, including related primarily related to HRA and $517 million of restructuring charges.

These were partially offset because we excluded from non-GAAP earnings to $418 million.

Belgian Arbitration award we received in Q3.

Full details of these and other smaller adjustments can be found in the non-GAAP reconciliation table attached to this morning's press release.

2021 full year adjusted effective tax rate was 22% down from last year's 24% principal.

Principal non-GAAP adjustments for the year, one the $308 million paid to the on research authorities to settle the Irish no dispute.

$48 million.

The $48 million tax impact arising from the transfer of intellectual property between various perrigo entities as a consequence of our divesting the generic pharmaceutical business at the end of the second quarter last year.

<unk> three release of $19 million.

Certain non tax U S reserves for $16 million in tax expense related to the seat.

From this point forward all dollar numbers basis points of margin percentages will be on an adjusted continuing operations basis unless stated otherwise.

Net sales for the fourth quarter were $1 1 billion.

Four 9% from the same quarter last year, a five 5% organic increase primarily from the continued rebound in sales of cough cold products, which we first started seeing in the third quarter.

Gross profit for Q4 of $385 million was $23 million lower than for the same period last year, while our Q4 gross margin was 390 basis points lower 250 basis points of the Q4 decline came from lower operating efficiencies while another 100.

Basis points was from margin dilution as well as sales to the divested from sales of the divested generic pharma business. When we owned that business. The margin was recorded but then the intercompany sales were eliminated.

Q4, operating income increased 12, 5% to $132 million, while the operating margin increased 80 basis points to 11, 9%, primarily due to lower operating expenses.

Moving on now to the full year net sales for 2021 increased one 2% as compared to prior year strong performance by our contract manufacturing businesses as well as favorable currency movements were partially offset by the net impact of acquisitions and divestitures largely the sale of the Rosemont pharmaceutical business in the UK.

Organic net sales declined 0.7% principally due to the negative impact of one four percentage points from lower sales of cough cold products as a result of the weak cough and flu season in the first half of the year.

Gross profit for the year was four 9% lower than prior year, primarily from $18 million lower operating efficiencies with lower volumes, resulting in unfavorable plant overhead absorption as well as from higher raw material costs and increased freight expenses. These same factors drove gross margin for the year.

Down by 240 basis points to 36, 5%.

2021, operating income was $479 million 60.

$61 million less than prior year at lower operating expense, including lower advertising and promotion spend and project momentum savings, partially offset unfavorable gross profit flow through for the same reasons full year operating margin was 160 basis points lower than in the prior year.

Now, let's turn to the segment results, starting with consumer self care Americas fourth quarter CSC, a net sales grew by a strong 5% primarily due to the rebound of the cough cold business and sales to the domestic generic pharma business, which is now a third party customer.

Gross margins in Q4 were adversely impacted by lower efficiencies from lower manufacturing volumes, which accounted for approximately 450 basis points of the decline.

Product mix and an additional 100 basis points operating income for Q4 was $110 million.

Full year net sales were flat compared to the prior year, while full year organic net sales declined one 1%, including a one four percentage point drop in sales of cough cold products as compared to the prior year.

<unk> profit for the year was $793 million $87 million below prior year, driven by lower operating efficiencies and higher material and freight expenses. These lower efficiency has also led to a year over year gross margin decline of 320 basis points operating income for the year was four.

$434 million.

The $94 million lower than prior year, primarily due to unfavorable gross profit flow through and increased distribution expenses, all partially offset by lower operating expenses and project momentum cost savings.

Moving on to a consumer self care international in the fourth quarter <unk> net sales rebounded strongly up four 6% on a reported basis and up six 4% organically. These increases were led by a sharp rebound in sales of cough cold products and from continued strength in our <unk>.

Skincare product line.

<unk> profit in Q4 was $183 million up 4% versus the same quarter last year operating income grew 78% to $60 million due to lower expenses, including a planned reduction in advertising and promotion.

This also led to sizable sizable increase in the operating margin to 16, 3%, a 670 basis point improvement versus prior year.

Moving to the full year net sales for 2021 increased three 6% to $1 $45 billion.

Helped by favorable currency, which offset the net unfavorable impact of acquisitions and divestitures.

On a full year organic basis.

Net sales were flat to prior year adversely impacted by the weak flu season in the first half.

CACI gross profit for the year was $719 million, one 3% higher than prior year due to favorable currency movements, which more than offset the adverse net impact of acquisitions and divestitures. These.

These impacts together with adverse sales mix that the gross margin for the year being down 110 basis points.

Operating income was $212 million up $13 million driven by the gross profit increase as just discussed and by freight and brokerage expense, including a planned reduction in advertising and promotion as well as the project momentum savings.

Moving now to the balance sheet and operating cash flow cash on the balance sheet at the end of the year was $1 $9 billion down.

Down from the cash balance at the end of Q3 of $2 1 billion. This decrease was primarily due to a settling the Irish tax NOAA, which we paid for in the fourth quarter.

Operating cash flow for the year was $156 million and our cash conversion rate was 56%.

I would like to provide some additional detail now regarding our 2022 guidance, we anticipate as Murray said already.

Full year earnings per adjusted diluted share 210 to $2 <unk>.

With an approximate 40%, 60% weighting between the first and second halves of the year.

Other assumptions in our guidance include negative variances carried over from 2021, which will depress margins in the first half of the year.

The higher volumes, including those we are currently experiencing will continue and will translate into improved productivity and margins for the second half of the year.

First quarter share based compensation will be higher in Q1 and in subsequent quarters due to the timing of awards within the year.

In closing 2021 was another year of significant COVID-19 related challenges, which weighed on our full year results. We are pleased however to be exiting the year with strong positive momentum and look forward to driving profitable growth as these COVID-19 impacts normalize our 2022 base guidance is rooted in this recovery.

The Covid headwinds, we also remain confident and excited about being able to close and successfully integrate the HRA transaction, which will meaningfully accelerate our future earnings trajectory.

Operator can you. Please open the line for questions.

Thank you we will now begin the question and answer session.

I ask a question you May press Star then one on your telephone keypad.

The reason the speaker phone please pick up your handset before pressing the keys.

Your question. Please press Star then two at.

At this time, we will pause momentarily to assemble our roster.

And the first question will be from Chris Schott with JP Morgan. Please go ahead.

Great. Thanks, Hey, guys I was going.

Just a couple maybe to start with on the gross margin dynamics.

I guess the first question I'm, having is just is just on the second half margin improvement and your line of sight on that can you just talk through a bit.

What still needs to occur for results to improve in the second half versus the first half versus.

I guess the actions you've already taken or some of the things like the volume increases youre seeing today that will imply second half margin improvement I'm trying to get a sense of what are the kind of pushes and pulls we need to watch that could impact I guess that rate of margin improvement during the second half and then I have a couple of follow ups after that.

Okay.

So there's a number of them that are just growing our occur right. So like we lost 100 basis points from the sale of Rx, which as we said before was simply it was I mean.

Company transfer before it fails now, but the product was already there you lap that.

Second half so that that negative drag goes away. So that's one.

If you look at.

The impact of the lower productivity and depending on how much it re keep pace with that those costs get built in.

And our our inventory and as you work through that you'll have a lag so thats why that last seasons cough cold and hit us so hard in the fall.

And so we will work through that inventory and now that our plants are running full out again with cost called Youll pick that up so.

The leading indicator of that was the volume and we got the buy.

The material price increases and freight they've come back a little on the freight but.

We'll see how that plays out, but we have significant pricing actions out in the marketplace and unlike a national brand.

We can't just do it and then I'll take a price increase today and it is up and money we have to work with our customers and I'm, primarily talking about the U S. We have implemented our price increases.

Nationally, but in the U S. We have to go and we have to show them the increases in by contract we are.

We have the ability and they have to accept a price increase of its truly cost related and as you know typically we would have years, where we break down a couple percentage points in pricing that began to stabilize to be up a little and we expect for that to be up a couple percent.

The year progresses, and all of those price increases have been accepted the good news is they have been accepted so and we haven't lost any meaningful business because of that so.

That's good news our customers are working with at that regard. So and then the other is the additional cost savings et cetera, but.

It will take a couple of years to get all the way back, but those first three sets of actions.

That's going to happen and then the fourth one which I'm not sort of in this in this description I'm talking about flat it excludes HRA, but HRA gross margins are significantly higher than ours and be their growth rates are significantly higher.

Good news about that is it will have an immediate gross margin part.

Does it have impact, but then it will have a positive mix impact going.

Going forward and just if you look at the fourth quarter numbers underneath Chris just to add a little bit of color.

See I actually from third quarter came back up a couple of hundred basis points and gross margin from third quarter to fourth quarter. In OTC came up 150 gross margin points from third quarter to fourth quarter, but we got beat up pretty good in oral care with freight costs out of China.

Okay. So it sounds like a lot of these processes are in motion or you've got line of sight on getting to that that recovery is what it sounds like from the from the various kind of drivers.

I guess the second question that was just elaborating a bit more on the 2023 kind of EPS range I know, that's something you're still driving towards but obviously it seems like the world and a little bit different place than it was a few years ago with supply chain and everything else. So just give us a sense of I guess, how reasonable is that target and.

Just how are you thinking about kind of 23 overall in terms of I guess.

The ability to recover some of the kind of impacts that we saw in 'twenty. One that like you know is it reasonable to get a lot of that back in 'twenty, three or could that be a little bit more of an extended processes.

I mean from a.

I've been very clear on it now.

If I get 100% back of it or not but I am not backing off at mid $3 EPS number for 2023, and the big components of that are cough cold coming back. It is right. So if you carry the second half gross margin forward, you shouldn't get up a bit.

Productivity benefit in 2023 above and beyond the underlying three five right. So when I model. It in a way if I was you and I was modeling I would take our core businesses I'd say three five that was our $35 seven model from the beginning I'd layer in a cough cold rebound that I later, NHRA, which by 20%.

Three we said about $150 million of EBITDA, we believe.

And and.

Thats getting a cluster.

A dollar of <unk>.

Our bps. So you take our estimates of where we're going to finish this year.

And yet.

Base level estimates grow at three five adder dollar youre starting to get into that neighborhood and then the big pieces be above and beyond that become.

Our ability to get HRA synergies above and beyond then.

Our site supply chain reinvention project.

Talked about it we are given an opportunity of bringing this big company and to take a look at our entire global supply chain, which has not been the focus on the first three years and was getting the portfolio right and we believe there are significant savings opportunities there to close that like if you're following me in the math that last 20.

30, where you might need in 2023.

And again I hope to lay all that out.

Before the end of the summer early September somewhere around there.

At Investor day that shows the details of that.

This progression.

And staying pretty close to our original expectation.

Great appreciate all the color. Thank you.

The next question is from David Steinberg with Jefferies. Please go ahead.

Good morning, David.

Hey, good morning, Larry Thanks couple of questions.

The company should.

On G&A management this quarter and I was just curious are there further opportunities there and related to that.

With lower R&D levels can you sustain it.

Pipeline of new products sufficiently at these lower levels and then the second question.

Related question is.

Just on your leverage ratio can you update thoughts on your leverage ratio.

Post close of HRA and then.

For fiscal year 'twenty three.

One is the leverage ratio I just wanted to just quickly what's driving good number that David was referring to.

Yes.

Leverage ratio we see.

Once we complete HRA, we see significant positive cash generation increased cash generation over where we are today.

And.

Our target would be.

Bye bye.

By end of 2023 to be back into the four time leverage little over four times and.

But quite frankly.

By 2025 to get our leverage down.

To us target range, which is in the mid twos in two and a half range.

Yeah, and I'm trying to get to the R&D number that you were talking about.

Right around 3% of.

Net sales than it was.

Part of project momentum overall every department had to give back a bit of operating expenses, but it was a default preference, but a couple of million dollars year over year over year, right and if I look at R&D for the total year. It was a famous or was changing yes. It hasnt changed.

<unk> it all I got to tell you that I am pleased that how well the company worldwide managed operating expenses.

Over the past couple of years as part of project momentum, but I do want to put it in perspective, you are talking about $100 million savings on what was a like a 300 $350 million pool of operating expenses now our focus as it should be because the world is concerned about gross margins, especially on the way it's gone.

Now Youre talking a couple 252 $6 billion target to go after.

On efficiency and I think youll see by the time, we get to you in September that is a meaningful opportunity for paradigm.

Just a question on new product flow.

So in the last call.

Eric.

Switches.

So it looks good.

On the last call you discussed potentially this major opportunity.

Starting with the UK hopefully transferring to the FDA.

Once daily birth control pill can you update us on that.

If anything you and some of the.

Lower hanging fruit right now.

Yes, so in 2022 and 2020.

Yes.

Yes, Brian and a follow up call can give you the specifics of some of the smaller ones I think the point. The first one which is the HRA one is still in the process moving along and remember we're in.

And FTC review period. So we are bound by gun jumping laws that we can't get to deepen.

Any kind of planning our future planning until we get final FTC approval, which.

We're optimistic it will be soon.

But there's no reason to think that's not on track.

And I spend a huge opportunity for the company to have the first daily oral contraception. They continue to have continue to win switches around the world on there.

One product, which is similar to plan b here in the U S.

I think that more encouraging part is you should look at that slide I put up there and see.

The fruits of a lot of our labor on innovations and moving from National Bad equivalent to a national brand different to National brand better first capsules or the burts bees natural line infant formula numerous lines of contract back on sort of the hottest Santana formula.

Out there winning new product of the year award from <unk>.

Major customer on oral electrolyte.

Nathan that's launching which is our own switch happening in this year too.

Yes.

And probably 15 more in the expansion of proud of hybrid biotic and in Europe , and the launch of nerve Axa and XL last four to five so I mean.

Cross the board, we have a robust portfolio my point on Rx OTC switches from the beginning as I was told when I joined Perrigo, there arent going to be anymore, and that's just not true I mean, we've had voltaren. We have we've taken on some of our others and I don't know the exact timing I do know I read a press release yesterday.

Hey.

On Gsk's separation.

New consumer health company and they made it quite clear that they expected above normal growth and some of that future growth was for the next couple of years to come from to Rx.

Our extra OTC switches so.

I think what's happening in the industry with J&J is spinning off their consumer health GSK spending off their concern of our house sanity.

<unk> offers that are out you are creating a $150 billion segment and that will now be a focused major consumer segment that will be need to be growing and driven by innovation and in the U S that presents a lot of private label opportunity as well as us to compete on a branded product so.

I think gross margins are Asher topline.

We've been proven we can do it we will continue to do it we've got HRA that will even carry us probably a nice double digit growth for the next few years and in this company needs.

I'll need to day again, and focus where we are on getting those gross margins back.

Great. Thanks, very much helpful.

Once again, if you have a question. Please press Star then one.

The next question is from Elliot Wilbur with Raymond James. Please go ahead.

Thanks. Good morning first question for Murray, just with respect to your relative growth outlook organic relative growth outlook for the whole business up 7% to 8% in <unk>.

<unk> 2022, I'm just wondering if you could provide a little bit of color in terms of the relative growth profile of each of the two segments CA versus CACI.

<unk> been smaller I would expect that maybe it has a slightly higher.

Growth rate than that all in number, but just wanted to get a little bit more.

Color behind that and then specifically with respect to the performance of infant nutrition in the U S. Maybe just some commentary in terms of sort of what led to the relative share gains.

Recent.

Media reports around some issues that are competitive.

<unk> is experiencing and just wondering if in.

In fact that May maybe something youre seeing a net benefit from or you just really don't overlap in terms of product offerings.

Okay and the last one.

We were benefiting for the last four or five months by <unk>.

Two or three share points and it had been years of declines so that business really turned around it was offensive on RFID plan right.

We had planned on lightweight launching hypo allergenic, a year earlier, and we couldnt because they called it but we did get it.

Launched we have a branded product that we pack for that is that direct to consumer that's doing incredibly well and has been.

And a lot of it.

New shows in the morning shows.

We are the sole packer for that one.

And helped develop it so I mean, that's been a positive contributor at the same time you are right that the national brands were having service issues and these numbers are before what's most recently, which is the largest or one of the big two and infant formula.

Uh huh.

I'm, a product and a significant product recall.

In the past few weeks, which has every customer in the country, calling us for additional volume.

Given the regulatory agencies, saying you need to do it you can help out to make sure babies are fine then.

And we're doing what we can given our relative relative size.

There is a lot there, but I don't want you to think it's all like their weakness, it's just as much all the positive things.

That we're doing as you look at the overall business I don't have CACI versus let's say thereabouts.

That far.

Not that far different next year I think the big components of it is even though it sounds like a big number at seven or 8% when you.

Break it down.

The underlying it's still the 2% to 3% that it's been and then you layer on top of that cough cold and then you layer on top of that.

A meaningful number in pricing over top of that and then you layer in another six months of the Rx divestiture of <unk> coming in and all of those factors are sort of what buildup to the saboteur right, but again, if you Peel it back the core products are still at that 2% to 3%.

Yes.

We're growing our core business.

But right now north of it Thats consumer takeaway is like 60% or so.

Okay, and then I wanted to ask a question.

With respect to cough cold inventory.

In the in the U S. At least I know that number you can provide the deck indications based on internal estimates, but I guess.

Sort of just.

<unk>.

Based on kind of.

Walking around pharmacies, and seeing sort of what occurred in December and <unk>.

January I mean.

Can't recall last time, we saw some significant stock out of.

Cough cold products at least based on the locations. We visited so I was sort of expecting that we'd see kind of more of an inventory benefit.

In in the current year.

And maybe even a little bit higher stocking.

Relative to last couple of years headed into the 2022 2023 seasons. So maybe it was a little surprised to see things kind of indicating to move back to normal just saw kind of given the strong demand in stock out conditions that we had seen over the past.

Couple of months, so just wanted to get your.

Thoughts on that observation.

Can I. Please make sure that I understand your question are you, saying you think it looks like we're being too conservative in our forecast, saying, it's not all the way back to 19 or are you, saying you thought the fourth quarter numbers should have been higher which are you saying.

With respect to your forecast it seems like it seems like replenishment of inventories would have a bigger lift in.

It seems to be kind of implied in your guidance.

Yeah, well I mean.

It does.

It depends how much of it was from omicron that Undergrounds tailing back off very quickly you are right. That's probably an area we're conservative on our plan.

At seven or 8% topline organic topline growth.

I felt like that is a joint robust three times, our normal level is a good place to start.

Let's hope that's.

That's a conservative estimate, but youre not wrong. If you do the math that I could get higher yes, we're still we didnt put it in our forecast the same level as we had in 2019 the last so a quote unquote normal year okay.

That's really a fact.

Right.

I agree.

Okay.

And then just last question so.

<unk>.

Can you too.

Continued to.

Talk about the <unk>.

Ergative impact on gross margins from various.

Manufacturing.

And this has kind of been going on for some time and you sort of alluded to.

Maybe a larger game plan in terms of addressing these going forward youre going to detail.

Later this year, but just.

Thinking about this just conceptually I mean is this something that can be shorter.

Remedied without shorter.

Massive.

<unk>.

Facility rationalization and restructuring.

Or is this really something that you sort of need to spit. It seemed like a multi year plan that you need to really kind of.

Significantly reduce your overall manufacturing.

Footprint.

It's not a manufacturing footprint because our business is so complicated that you cant even look at it as one supply.

Our supply chain, we kind of have five very distinct supply chain.

I don't think manufacturing rationale as a big point of it but just given the complexity of our business. How this thing has swung if you look at the level of interest.

SSO.

Scrap and obsolete inventory and things like that they are way too big a number.

For the past few years, that's better planning better demand planning that.

Say again.

<unk> planning all of that so.

There is north of a $50 million savings opportunity on planet.

But youll have to be able to get it down to the SKU level and with our customers and their goes along with that.

And I am previewing, you hear a little bit, but there's opportunities for SKU rationalization.

And we say, yes to everybody advil launches that item.

500 items later, we matched that one item.

So I'm sorry.

I mean, I'm being literal life, if they launch one we launched 500 and there are ways to consolidate that amongst customers et cetera that increases efficiency that increase in service. There is a big number on service.

My head of supply chain and I. Just recently attended with a very small group of Ceos at Walmart and their new distribution center talking about the same issue for them how much they are leaving on the table for service and the same issue as it is for us in ways.

<unk> added.

It's a big number.

Build demand that goes by every month, so I'm getting after that there is some opportunities on other times of rationalization and automation.

And I've spent the last three years getting different parts of the company, making the investments in it.

On the plant floor, there needs to be an ability to be able to measure kpis of productivity in the.

The priority of orders that are coming in at a higher level than they are they are there now that's my way of saying I think the short term midterm and long term supply chain savings, which will shine.

Okay, great. Thank you.

Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Murray Kessler for any closing remarks.

Yes, I want to thank everybody for your interest in Paragon.

Any of our Ukraine colleagues, if you're you're lessening, which are probably not given the circumstances, but if you are with you.

No.

Have our support.

And it.

My Big message to everybody is we have changed in this company over the last three years dramatically change that it is now a consumer self care company.

And we have gotten the top line growing we are fully aware of the gross margin initiatives and were after the first job for us as a management team with a put this thing together and get out of businesses get out of these billions of dollars of overhangs and we have done that the job now with with laser laser focus.

It is now profitability and profitable growth going forward and we believe we will get there and I am not letting go of those 2023.

Original objectives, yet so thank you for your interest in Paragon.

And thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

Oh.

[music].