Q2 2022 Perrigo Company PLC Earnings Call
Good morning, and welcome to the Paragon <unk> second quarter 2022 financial results Conference call all participants will be in listen only mode.
Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on your Touchtone phone to withdraw from the question queue. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Brad.
Joseph VP Investor Relations. Please go ahead, good morning, and welcome to Paragon with second quarter 2022 earnings conference call I Hope you all had a chance to review the earnings press release, we issued this morning call.
Copy of the earnings release and presentation for today's discussion are available within the Investor section of the Paragon Dotcom website.
Joining today's call are president and CEO Murray Kessler, and recently appointed CFO Eduardo Bezerra welcome Eduardo.
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, a few quick items before we start.
First unless stated all financial results discussed and presented on a continuing operations basis. They do not include any contributions from the divested Rx business, which was accounted for as discontinued operations prior to itself.
In addition to other non-GAAP adjustments as described in the appendix adjusted profit measures, including adjusted EPS and adjusted operating income exclude from the prior year period certain costs incurred to support the operations of the Rx business, which were reported in continuing operations.
See the appendix for additional details and for reconciliations of all non-GAAP financial measures presented.
Organic growth excludes acquisitions divestitures and currency in both comparable periods.
And third managements discussion will focus solely on non-GAAP results, except as otherwise expressly noted.
Now I would like to turn the call over to Murray.
Thank you Brett and good morning, everyone.
I want to recognize the entire pair ago team for a truly remarkable quarter, we are executing well against our self care strategy, which is clearly the right direction for our business and even though we continue to operate in an extremely difficult macroeconomic environment.
The team once again achieved a number of major accomplishments during the second quarter.
Let me be specific first we closed on the HRA transaction, which had an immediate impact on the quarter and is setting us up for outsized growth.
Two we closed on 2.6 billion senior secured credit facilities locking in favorable rates and further certainty three we received FDA approval of and launched Parados first ever branded Rx to OTC switch Naser next 24 hour.
Four we filed with the F D. A for the first ever Rx to OTC switch for a daily birth control pill, the old pill and five we worked around the clock at our infant formula facilities to deliver.
For 72 million more infant feeding as year to date than the same period last year as we continue to do everything we can to help fill the severe shortage in the U S created by a competitor's recall.
And we did all of this while delivering year over year constant currency topline growth of 20%.
<unk> profit growth of 17% and operating income growth of 8% we.
We also achieved a 310 basis point sequential improvement in para does gross margin as promised.
Net net I'm pleased to see strong fundamentals on our business and a full pipeline of significant innovation.
Looking at the quarter in a bit more detail.
We delivered strong topline growth with reported net sales growth of 14% or as I, just said plus 20% growth on a constant currency basis.
This was driven by robust organic growth of plus 17% stemming from continued strength in our product categories, including cough cold and infant formula.
And channel expansion, including ecommerce.
Worth pointing out the bulk of our 17% organic growth was volume mix with only four points of that growth coming from price.
Sizable volume mix growth price increases and the incremental contribution of HR a revenues for two months overcame significant inflationary pressures on costs, but Latin America, and scar away divestitures and the higher operating expenses in the quarter versus last year.
Which included $8 million of costs not expected to repeat.
Higher year over year interest expense and a <unk>.
Slightly higher share count led to constant currency diluted EPS for the quarter up 49 cents or 43 cents, including adverse currency translation.
Importantly.
Topline growth year over year accelerated for the fifth quarter in a row as consumer demand for the categories. We compete in is very strong and our inflation justified price increases taken to offset severe inflation related cost increases are taking effect.
As I said HRA, which is included in our result made it immediately positive impact to the quarter contributing $65 million and constant currency net sales with only two months of accretion following the April 29, 2020 do close.
Hey, Troy as high gross margin had a 220 basis point positive impact on Paragon <unk> consolidated results.
We expect the long term benefits from the acquisition of the fast growing HR a portfolio to be significant including our estimate of over $40 million in cost synergies.
As we align our strategic growth pillars to incorporate the HMA portfolio. We've created two new product categories. We are reporting in our disclosures women's health and skin care.
Both will be important to the future peridot growth story.
When care is now our second largest global category <unk>.
15% of global sales. The segment is growing strong and includes major brands like come Peed, Arco mid derma and I'm all in.
We view women's health as potentially our largest and most relevant global growth opportunity and we look forward to sharing more about our plans in this area in the near future.
With those new product category definitions as part of our disclosure framework, let's take a closer look at revenue growth for the quarter.
As you can see strong double digit growth was experienced across both consumer self care Americas and consumer self care International. It was also strong across our major product categories.
Let me give you a few notable highlights.
One our upper respiratory revenues grew 44% versus year ago globally, and our related pain and sleep aid revenues grew 14%. We attribute this to a rebound in cough cold sales as compared to last year's sales, which were still depressed as a result of COVID-19.
Of late as Lockdowns.
That in combination with an extended cough cold season, this year and a good start to the global allergy and Hay fever seasons accounts for the strong growth in this product category too.
A 31% increase in our nutrition business was driven by infant formula, which primarily benefited from the surge in demand in response to the competitor brand recall I just mentioned.
Three a 30% increase in our skincare business relates to the addition of compete in Mcdermott and continued strong growth on Opco and for our women's health business grew 77% due mainly to the addition of the HRA businesses, which also benefit.
From the increased demand spurred by the public concern before and after the recent judicial decision in the U S related to ROE V. Wade.
It's worth noting that our shipment growth rates were somewhat higher in the quarter than the consumer offtake growth rates.
I note that this is not due to increased inventories of customers. Rather if you remember last year's second quarter was slightly depressed.
Due to inventory reductions by our customers the absence of that reduction this year gave an extra benefit to Q2 sales.
In fact, our inventory levels are where they should be with the obvious exception of infant formula.
Another positive trend in the second quarter was the share trend between total store brands and National brands year to date total store brands have gained more than three share points on a dollar basis. While early consumers are clearly shifting to store brand as a result of it.
Pleasure.
As we discussed last quarter, our infant formula business continued to gain volume share in the non with category up more than 10 share points versus prior year. These gains are due to the launch of our store brand hypoallergenic formulas.
And of course, the shortage created by the competitor recall.
We continue to run our factories round, the clock and have optimized our product offerings. So that we can produce 117% of our normal full capacity.
We're doing everything we possibly can to help feed America as babies.
During this crisis.
This unusual circumstance has given many families the opportunity to try a private label infant formula for the first time.
A good portion of which we believe will be sticky.
Latest survey results show that more than wanting to re pediatricians are recommending store brand formula to parents up from one in five in October .
A year ago. These results illustrate that our physician directed marketing efforts are making significant progress.
And this is an important trend as the parent or caregiver, who purchases infant formula typically it turns over every 12 months.
Our investments over the last few years in our ecommerce business continued to deliver significant growth for pair ago E. Commerce sales in the first half of the year grew more than 25% versus the strong prior year period, driven both by the Americas retail customers and international direct to consumer initiatives.
Commerce sales are now over 12% a para goes global sales.
During the quarter that team launched our first ever branded Rx to OTC switch Nasonex now available on retail shelves.
And as a reminder, this was a first cycle approval and illustrates the robust regulatory capabilities at Paragon.
Congratulations to the entire team.
This important launch.
Another example of our regulatory and Rx to OTC switch capabilities at Paragon was the recent filing of our application to the FDA for the potential first ever over the counter oral contraceptive pill.
This filing represents a trend madis amount of work done by our HOA colleagues.
And our commitment and their commitment to women's health, it's a meaningful step.
Forward to expanding affordable access of daily birth control products for women in the U S. At a time when it is most needed.
The outcry of support for this filing was overwhelmingly positive and we hope to launch this product in the U S. Late next year pending FDA approval of course.
Another bright spot in the quarter was gross margin Burgos second quarter gross margin expanded sequentially from the first quarter by 310 basis points well on the way to our goal of recapturing four to 500 gross margin points versus the first quarter by year end.
I don't want to sugarcoat. This in any way rising input costs in severe labor shortages are still part of this dynamic macro environment.
He's had words have yet to ease, but despite that the price increases we've been able to implement along with a number of procurement actions gives us confidence that we will still reach our gross margin goal.
As I discussed earlier this year.
Our self care transformation is complete.
Now is the time to optimize and accelerate the new pair ago.
An important part of that next phase is our global supply chain initiatives designed to maximize productivity and efficiency in order to deliver world class service levels and enhanced gross margins for years to come.
The design phase is basically complete and we'd begun what will be a five year phase the optimization, which ultimately should deliver between $100 million and $300 million in net cost savings.
Let me give you a few examples first.
We will be upgrading our demand planning systems utilizing the business intelligence and global data warehouse, we put into place over the past few years.
This is expected to result in reduced product obsolescence reduced inventory and increased productivity in our facilities.
Also increasing productivity will be the implementation of a paragon work system that will provide visible and meaningful metrics at the shop floor level to enhance agility, which will again enhance productivity and free up capacity.
We will be optimizing and streamlining the portfolio by S. K you to reduce complexity.
80% of the complexity in our system is not consumer facing this.
This is a big opportunity for both us and our customers.
And a number of facilities, we will be modernizing manufacturing equipment to increase automation increase capacity and reduce business interruption risk.
And a final example is we will be creating centers of excellence for our different product streams.
Key locations around the world hopefully this gives you a flavor that our commitment to profitable growth growing margins and superior service is not a short term exercise, it's part of the fabric of parent company and our culture as always there'll be a cost required to achieve these savings.
And I look forward to sharing the entire plan and the costs required to achieve them in more detail at the appropriate time.
So in closing.
It was a solid quarter I'd, even say it was an extremely strong quarter in the context of the headwinds we continue to face.
We are benefiting from strengthening fundamentals margins that have begun to grow again and a strong flow of innovation.
We know our new self care strategy is correct.
And our emphasis going forward is to optimize the newly configured company against this strategy and to accelerate profitable growth.
Our priorities are to continue to drive growth in our six strategic product category pillars.
Successfully integrate HRA and achieved the related cost synergies.
Begin implementing the supply chain reinvention program with an eye to enhanced gross margins and to continually improve our organization and our culture.
And of course, we will remain mindful of the difficult headwinds, we and everyone else space in the short term, we will continue to adjust to handle those headwinds, but my big message is the tremendous future that has been set up for pair ago and how it is all coming together as originally planned.
With that I'll turn the call over to our CFO Eduardo to discuss the financials in more detail Eduardo.
Thank you Marie.
And good morning, everyone.
Before diving into our second quarter results in more detail.
Like to take a moment to introduce myself and share some perspectives from my first three months as CFO of Marigold.
Prior to joining the team I had a broad base of responsibilities that I think our pricing, particularly applicable through the work I had of us at Paragon.
For the past three years I have the CFO position at fresh del Monte a publicly traded global organization with a complex supply chain.
We're seeing an operation that had to deliver perishable foods across all five continents in a matter of weeks qualifies me well for a company that makes products with two plus yourself dating such as variable.
Prior to my time at fresh del Monte.
I spent 21 years at Monsanto.
I held various positions from finance to commercial and strategy.
I held CFO positions in various business units led implementation of a global finance transformation, how Io upscaling their global finance shared service platform and eventually the integration efforts as part of the buyer acquisition.
Over the past three months I have been busy getting to know bear it goes business and our outstanding team members around the World I took the time to visit our west Michigan facilities math, our C. S. C. A sales and marketing teams met with dollars, yes, He I leadership team and had the opportunity.
To welcome our new colleagues from major aimed bearish I would say the constant theme from my interactions. So far is the passion and commitment that our colleagues have for their work and for the Paragon vision.
Really far Tonight to lead such a talented and capable global finance organization and to be part of an amazing leadership team.
As we look ahead at our priorities from a finance perspective, there are a few topics that I have brought to the top of my list first is delivering on our financial results, both findings and cash flow, which we remain on track to achieve this year on a constant currency.
This is despite continued macroeconomic volatility which will translate into positive operating cash flow.
Second he was recapturing gross margin, which we made significant progress during the second quarter with about 310 basis points sequential improvement versus Q1 and gross margin.
But we have more work to do.
<unk>.
The team is well on their way to reinvent our supply chain with the goal of optimizing our ability to deliver our needed self care products to consumers and customers as Marty stated, we look forward to sharing more details about these soon.
Let's now take a look at our financials, starting with our GAAP to non-GAAP summary.
We reported a consolidated GAAP loss from continuing operations of $65 million for the second quarter of 'twenty to 'twenty, two or a loss of 48 cents per share per diluted share.
Oh, no not adjusted basis net income from continuing operations was $59 million and adjusted diluted earnings per share from continuing operations were 43 cents per share or 49 cents per share on a constant currency basis.
Versus 50 cents per share in the prior year quarter.
A few adjustments to the GAAP P&L this quarter are worth noting.
Second quarter 'twenty to 'twenty, two pretax non-GAAP adjustments totaled $196 million, primarily driven by adding back amortization of $63 million and acquisition and integrated related charges of 100 and the $1 million.
Full details of all adjustments can be found in the non-GAAP reconciliation table attached to this morning's press release.
non-GAAP tax adjustments for the quarter were $62 million, primarily driven by the tax effect of pretax non-GAAP adjustments. These led to an adjusted effective tax rate for the second quarter of 2021 of 23%.
Turning to our quarterly results on slide 23.
Let's walk through the highlights.
Very good and that sales for the second quarter increased 14.3%, including a six percentage point headwind from adverse currency movements.
Organic net sales increased 17, 2% driven by solid performance in both segments stemming from strong consumer demand.
Gross profit grew eight 7% or 17% on a constant currency basis versus prior year, driven by higher volumes and increased pricing as well as the addition of H R E D.
These increases offset higher cost, including cost of goods sold inflation increased freight expenses and lower plant productivity driven by tight labor market conditions, specifically in our U S facility.
As a result gross margin in the quarter declined 190 basis points versus the prior year.
Operating income was relatively flat to prior year, but grew seven 9% on a constant currency basis favorable gross profit flow through was partially offset by higher operating expenses driven by the inclusion of a trade in.
In addition to higher employee and distribution costs operating margin. It was 160 basis points below prior year, but again, we achieved a sequential improvement of 230 basis points versus Q1.
Turning to our segment results C. S. C. A net sales increased 17% compared to last year.
Driven by continued strong demand for our cough and cold products and strong performance in our nutrition and contract businesses.
Gross profit increased by 3% versus prior year as a flow through of strong top line results offset significant inflationary cost pressures in freight and cost of goods sold in addition to the lower U S plant productivity I just mentioned.
These factors however.
Led to a gross margin decline of 380 basis points versus prior year.
As expected C. S. C. A adjusted gross margin grew 290 basis points versus Q1, driven by favorable mix and positive pricing.
Operating income for the quarter was $105 million slightly below the prior year as favorable gross profit flow through was offset by higher distribution expenses and a year over year impact of the divestitures.
Looking at results for D. C. S. C ice segment net sales on a constant currency basis increased 25.8% inclusive of a positive benefit from the addition of each array.
Organic net sales grew 10.6% driven by continued demand for cough cold and flu related products as well as a rebound in categories impacted by Covid in the prior year, including some burn care and had the lease offerings.
Pricing was also positive in the quarter.
Gross profit was $206 million up 31, 9% on a constant currency basis, driven by the addition of HRA increased sales volumes and pricing.
These factors drove a 240 basis points increase in adjusted gross margin versus the prior year.
Operating income increased 36, 3% on a constant currency basis.
Favorable gross profit flow through more than offset higher operating expenses, which increased due to the inclusion of each array as well as higher employee and travel related expenses as our sales force is 100% back to meeting in person with our customers.
Moving now to the balance sheet and operating cash flow.
Cash on hand was $485 million at the end of the second quarter down from 2 billion at the end of the first quarter due to the $1 9 billion cash payment for the HMA acquisition, which was partially offset by incremental borrowings from our refinancing.
And cash generated in the quarter.
Alright, and cash flow for the first half of the year was $62 million, which represent an increase in operating cash generation of $144 million versus the same period last year.
In addition to acquisitions and divestitures and cash movements related to our debt refinancing, we invested $49 million in capital expenditures and returned it $70 million to our shareholders through dividends during the first half of the year.
Now that the HMA acquisition is closed our capital allocation priorities are one.
We remain committed to growing our dividend.
We have a strong track record of accomplishing these with our 18 consecutive years of dividend increase.
Two we will continue to assess kept on needs required to optimize our supply chain and operations and three we plan to reduce our debt over the next three years. We then ultimate leverage target of below four times. In addition to assessing the potential for share repurchases if appropriate.
Looking at our fiscal 2022 guidance on slide 27, given the strength of our results. We are increasing our organic net sales year over year growth range to 9% to 10% from 8% to 9% previously.
While reaffirming our all in year over year net sales growth range of eight 5% to nine 5% the increase in organic net sales growth outlook is expected to be offset by the worsening backed off of currency translation.
Our updated adjusted diluted earnings per share range is now $2.25 to $2.35 per share versus the previous range of $2 30 to $2.40. Hawaii. There is no change to our thoughts on delivering a constant.
Currency EPS range of $2 40 to $2.50.
In closing I'm excited about our business and we continue to see momentum across both segments. Our team continues to deliver strong results in a very dynamic macroeconomic environment and we remain focused on factors that we can't control.
I look forward to meeting many of you over the coming days and months with that operator can you. Please open the line for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your time will tell me I've made note of if you will.
Please pick up would you like to do that last time I heard you clear throw kind of in the middle.
Okay. All you have to you.
That's fine.
Give me a three second count though okay.
321.
At this time, we will pause momentarily to assemble our roster.
The first question is from Stephanie Wissink of Jefferies. Please go ahead.
Hey, everyone. It's Chris name Auditor on for stuff. This morning, Thanks for taking the questions that congrats on a nice quarter.
First we have a two part question around trade inventory levels. I think you commented on this earlier, but wanted to confirm so could you just give us an update on what you're hearing from the retailers and as you think about the growth outlook for the year is there any way to break out how much you think it is takeaway driven versus maybe more of a reflection of of lagging.
Inventory levels and then the second part to that question is a follow up with you would be with the color on strong demand trends could you help us think about demand levels relative to your current available capacity.
The first one when you, let's just sort of cut it back to our core over the counter business and in the U S. The European.
Numbers are easier to track Theres, no inventory as pharmacies and they.
They're trending right along with consumer takeaway.
The U S business is actually tracking right along the OTC business is also tracking right along even though on the surface. It looks a bit higher right, you've got roughly 18% to 20% OTC growth looking against IRI takeaway of about 9% or 7%, 7% excuse me.
But when you add the ecommerce, which you can't see when you add a couple of major retailers that are not in IRI, that's closer to 9% now when you take the 20 and to take out the <unk> business.
From last year that was as you recall with internal and then we had to reported as external sales, it's about 9% to 10%. So there isn't a big difference for us in consumer takeaway versus versus what we're shipping.
It's very much in line, Okay, now go out and by the way the inventory levels are where they need to be we they didn't put enough inventory and.
And cough cold so we got a little bit of benefit that compared with the reduction on last year, but not now.
Nothing to influence the business going forward, so I feel good about over the counter.
Products in the U S inventory levels now, let's go over to nutrition nutrition.
Primarily it's in infant Formula story, we're tracking right along we can't we can't make it all and frankly at this point after making 70 million more seatings and running we were running 115% of capacity, 117%. There is a moment, where you have to pause.
There's a little bit and claimed the factories and you just can't run 24 hours a day seven days, a week forever or the factories got it.
So.
We're doing all of that that maintenance go safety.
Has to be our first priority. So we won't keep up with all of the demand and the good news from a ongoing business perspective is even once a retail shelves are full again.
Moms are able to you know not panic about and having to award from Bae and they they they see the availability it'll be months and months, where we're replenishing both wholesale inventories and at our own inventory. So that'll keep running and I said months ago I thought that would take to the end of the year.
Now I'd say, it's going to take at least until they till the end of the year and then on oral care, we have been able to to replenish our inventories there we've been again sure getting product out of China and that challenges with freight and I think we're in a.
Better situation there. So yeah, that's why I kept saying on the call I thought the fundamentals were strong. Okay. So that's sort of where we were where we are the hardest part the only thing that keeps me up at night right. Now is labor shortages and you know this has been from Covid to the war to truckers.
I mean, it's been a.
One battle after another and we keep tackling them, but the biggest issue we face right now is having enough people to run third ship to meet demand.
Flat out that is what we are working there.
Harvest on.
To be able to have the proper.
Inventories to be able to ship to them.
Have the proper service levels. So that's our battle today. So you you said do we have enough today, we're a bit short and we are working on it daily.
Okay. That's very helpful and that's why we're well into my next question I guess, just given kind of some of the choppiness in the macro supply chain right I know you flagged it.
But could you comment on any sort of conservatism and gross margin expectations as we move through the balance of the year.
Well.
I would have said last quarter that it was.
I was probably conservative even though I said, we were going to recover at a four to 500.
Basis points somebody got 300 out of that but I will tell you that in a cost still went up again and that you know I was glad I was a bit conservative or we can still be on track to deliver what I said we would.
And be able to handle the excess.
Additional costs and some productivity issues from the labor situation. So I don't think there's a ton of upside there and I think we're right on kind of right on track.
Yeah.
Thank you. The next question please.
Kate are you there.
The next question is from Elliot Wilbur of Raymond James. Please go ahead.
Thanks, Good morning.
Hmm.
Yep.
Forward and thinking about this year's cough cold season, Murray and and some of the absorbs initiatives that the company encountered over the last 12 to 18 months with respect to that product category. I know you mentioned in the text that you have experienced some lower plant.
Efficiency.
Issues, primarily due to the labor shortages, but specifically with respect to that category, how should we be thinking about sort of your per unit costs.
On that line headed into the peak cough cold season.
Well I'll answer it a little bit in that order you can help me out here a little bit you know where we're at.
I, probably would say and you correct me if I'm wrong, Eduardo I would probably say, we I would start that would've expected to start seeing some favorability as versus a year ago, but with continued labor shortages will continue to be challenged on productivity and until we get those.
Third ship positions filled and can fully run out.
The demand in the plans we have built.
We will continue to have some some not.
Not worse than it was before but not getting better like it should as fast as I would like having said that we got better pricing so that I want to cover it in my original estimates, we we did better than I said, we would do and that's helped to keep US right in line and and and I'm Gonna still stick with the overall, 4% to five.
Wondered margin.
Recovery from first quarter to fourth quarter.
That's fair.
Okay, and then just with respect to pricing relaxation benefits through the course of the year could you repeat the number that you provided in the quarter I want to say I thought I heard you say, 4%, but I want to make sure that in fact is is is accurate and then just sort of where are you where are you in.
Planned.
Pricing actions for the for.
For the year I know that previously indicated okay can't move as quickly.
There are still north of 60% of the pricing actions that we have gotten approved at retail.
Yes go ahead.
And a third of them.
The fourth quarter and it is 4% for the <unk>.
First quarter I remember you know that's that's the average across all of the businesses in certain categories. Its more aggressive and super competitive category. As it is that's the blended average and that compares the years and years and years of a 2% to 3% pricing erosion and so it's a pretty big swing for.
For us.
And on your last question I want to make sure I'm answering it you are correct that cough cold costs will look better because we're back producing cough cold and now the productivity issue that I talked about now with labor is kind of blended or across the board but.
Sure.
I think the good news if you are watching the peridot story as gross margins are growing again.
Okay, and then just a last question I know you're planning on.
And much more comprehensive picture at some point in the future, but anything between now and year end that you can say with respect to the women's health business ex U S in terms of potentially.
Banding the recent.
OTC countries get their approval in the U K into additional geographies.
Potential for any additional well it is less than one.
<unk> business with women's health, which is the.
The starting point, we're organizing all you know a whole separate business unit around women's health I think the opportunity is so big and you know once probably in 80 countries that as we start right now so I mean, we the next big one for the hotel and you saw filed was.
As you know a couple of weeks ago was.
The United States.
It's in the process of being filed in at least three more countries in Europe as we as we speak they're not want as fast track and you.
Well it'll be interesting is we're looking at the normal process of 10 to 12 months I think it's 10 months. The FDA has to evaluate this and then you know the.
The launch later in the year, there's been a lot of pressure by a lot of groups supporting this MAA has come out with a kind of logical association governors I've written to.
The F D. A congressman signed there was like 20 or 30, congressmen and signed a letter of a group of women Ceos as as step, but there is a lot of.
Support for this application. So the big question will be could that get expedited I have no idea at the moment in the U S. But if it does it all come with investment and we'll lay that out for you as well but.
Don't think of our women's health strategy is just this it it'll be contraception, but it'll also be sort of at all different stages of.
Of a woman's life in at all.
You know like you said will come forward with a full plant but.
We already make a parent or a number of other products.
As well.
This is a real opportunity for Paragon to stand out in a major segment of the market globally.
Yeah.
Okay. Thank you.
And the final question today comes from Chris Schott of Jpmorgan. Please go ahead.
Hey, guys.
Just my first one was when I think about gross margins in the second half and this 37% to 39% range.
Is that starting to get back to I guess, a normalized level prior to some of these supply chain initiatives or should we think about there being more.
Gross margin recapture to think about I guess as we go into 2023.
Oh, I definitely think you shouldn't be thinking Oh more I mean, you know one of the biggest you've got pricing that's a driver great, but you still.
The productivity, we will get that issue solved just like we saw in the distribution. One just like we saw every other issue that that we've had and that's a big number the obsolescence number going through cough cold of no season in back in the shelf life and a lotta throwaways, you've seen you know a couple of quarters in a row or we.
Had some some one timers that.
That should not they are different than last quarter, but that's all having dot com coming out of a disrupted business.
And that order and recover the bulk of the 37 to 39, let's face it you're getting a big piece of that from HRA. So the depressed core margin is still for they're grabbing and that's that's all supply chain initiatives that I talked about a 100 to 300 million you know your top 10.
That's meant to get gross margin growth and progression for years to come not just for 2003.
Okay perfect. The other one I was just wondering my hands around is if you just think about the economic environment. We're in can you just talk about the impact a recession would have on your business I think obviously going back to 2008 2009. There was it was a really nice tailwind that's.
I would think about the profile today to see much companies a bit more balanced between the national brands ex U S versus the store brand business in the U S and just talk a little bit about just if you know we head into a recession over the next year or so how how you'd kind of pushes and pulls for paragon that.
Well I think you just did a good job in answering the question were more balanced than we were before.
I think we're already seeing a benefit you hear that from every retailer and a major retailer that we deal with in their conference calls, they're all talking about paying down trading.
To a private label or store brand. If we had a chart in this presentation that.
Which is mostly share recovery from what we lost last year International brands, but we've gone from an O. G. C. I think like 27 back up to 29, 26, and a half up that 29 to 300 basis point recovery in the last four or five months or so.
Switching studies are now starting to show switching from.
From National brands downtown.
Private label and store brand and that's yes, if history repeats itself, which it.
You would say it should that's a benefit on the other hand.
There is also inflation in Europe , and we're more branded and in Europe . So we'll watch that more carefully but.
Unfortunately, we have sort of unique selling propositions and we're not overly aggressive with pricing, we're probably at the same or our price gaps haven't widened in any way so it'll be what happens to the market.
I don't know paranoia I just wanted to thanks I'm proud of what we've done is we've taken a company that was sort of lopsided.
And we've reconfigured it in and now you do have a very balanced portfolio.
Roughly now have international half U S and you're roughly now App store brand and branded.
So hopefully a less.
Susceptible to external factors over the over the mid to long term and and then we can grow the business on the fundamentals, which are getting stronger every day.
Perfect and just last question for me is just get an update on I think with the HR ideal last year, you talked about roughly a dollar of accretion and I'm. Just wondering if you can update in terms of does that target still kind of hold or with the macro environment do we need to rethink that a bit or do you see any color there.
You need to adjusted for currency and the facts that I talked about $150 million and operating profit impact and where we're right on that.
To be fair I am still working through with the accountants.
The cost of achieving some of those.
How much hits, the P&L or how much is adjusted et cetera, but you will have a clear line of sight to that $150 million that we talked about on day one.
Great. Thank you so much.
If the currency.
You can do the math on that.
It's when I was talking that it was about 19.
Great. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Murray Kessler for closing remarks.
Yeah. Thanks, everybody for your interest in pair ago I guess my big takeaway for this quarter you know I've been here for close to four years now we've come through the <unk>.
Transfer Amative of years, and we're very focused on now accelerating and margins and profitable growth, but it was notable to me is the corner was going on sort of the win after win after win we've had which were the results of years.
Filing Wednesday, Nasonex, which the filing of HRA the results of edge array being included share gains.
Across the board in the company and you can feel it its vibrant.
And the company and I know we all.
Still deal in a difficult macroeconomic environment, we are focused on delivering numbers, but I'm. Most excited about seeing this new company that we've configured going forward starting to accelerate.
And I think youre going to see some real progress over.
The next few years here of of the self care strategy and what it can mean that creating value.
Thanks for your interest.
We will talk to you next fall.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
Oh.
[music].
Yeah.
[music].