Q1 2023 Perrigo Company PLC Earnings Call
Okay.
[music].
Good morning, and welcome to the Paragon first quarter 2023 financial results Conference call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the Starkey followed by zero.
After today's presentation there'll be an opportunity to ask questions.
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Please note this event is being recorded.
I would now like to turn the call over to Brad Joseph Vice President of Investor Relations and corporate Communications. Please go ahead.
Thank you Anthony good morning, everyone and welcome to <unk> first quarter 2023 earnings Conference call Hope you all had a chance to review our leases issued this morning, a copy of the earnings release and presentation for today's discussion are available within the Investor section of the Paramount Dot Com website.
Joining today's call are president and CEO , Murray Kessler and CFO Eduardo Bezerra.
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.
Two quick items before we start first unless stated all financial results discussed and presented on a continuing operations basis and do not include any contributions from the divested Rx business, which is accounted for as discontinued operations prior to itself.
Second organic growth excludes acquisitions divestitures and currency in both comparable periods all comments related to constant currency remove the impact of currency translation versus the prior year by applying the exchange rates used in the comparable measurement in the prior year's financial statements answered Brian's discussion.
Okay solely on non-GAAP results, except as otherwise expressly noted.
See the appendix for additional details and reconciliations of all non-GAAP financial measures presented.
And lastly, I want to share my deep appreciation for Murray during his tenure in parallel and awards now congratulations on retirement.
Membership in leadership has been invaluable and we offset this company on a path for long term success on behalf of shareholders. Thank you.
Now for the last time it is my pleasure to turn the call over to Mark.
Thank you Brad and thank you everyone for joining us this morning.
Many of you likely attended the virtual Investor Day, we hope that at the end of February we already provided detail on the next phase of our strategy, what we are calling optimize and accelerate.
This was my second Investor day, since joining pair ago and I believe this was a critically important event for our company.
My team shared specifics on how we expect to generate a significant amount of value for shareholders.
And the feedback we've received has been overwhelmingly positive.
Now after four years of transforming <unk> into a consumer self care company. The management team is focused squarely on operational execution and consistent delivery of results.
To that end, we've made meaningful progress on many of the initiatives discussed at Investor day during the first quarter of 'twenty three.
We're on track with the integration to the HRA and gateway good start brand acquisitions and are already realizing significant benefits from both.
We are progressing faster than I expected on supply chain reinvention.
Some exciting results in the early stages more on this in just a moment.
And I'm proud to say that apparel women's health team is starting its presentation to the FDA Advisory Committee today for a potential first in class Rx to OTC switch.
Hope to oral contraceptive.
Underpinning the progress across our strategic initiatives, our strong financial results and business fundamentals.
To Echo comments from my general managers at our quarterly business reviews.
After two years of unprecedented volatility we are seeing in our business become more consistent and predictable and get that predictability manifested itself in the first quarter, where <unk> achieved double digit growth on top and bottom line meaningful gross margin expansion driven by both the base business and acquisitions.
And retained or grow market share as a global consumer demand and fundamentals remain strong.
We also announced within the last two weeks the successful elimination of the largest remaining tax overhang on the company by resolving the entire April 2019, Athena tax assessment of $843 million.
Yeah.
No payment was required and this assessment is now completely dismiss.
Also just on the interest rate tax assessment with the IRS.
Now cleared the decks and dramatically reduce the uncertainty in the Paragon investment base.
As I just touched on benefits from recent acquisitions are not only turbocharging, our financial results, but are also creating greater leverage across the <unk> portfolio.
And HRA, we are delivering on our revised higher synergy targets, we remain on track with the HRD distributor conversion into Paragon direct sales model, which will deliver significant ongoing cost savings once complete.
As I discussed on previous conference calls there is an approximate $32 million one time impact to operating income in 2023 associated with returning inventory from distributors.
The annual estimate well million top line and five in EPS impacted the first quarter as expected.
Accordingly, we are realizing greater leverage on our legacy Sci business as our sales force is now able to combine strong pan European brands, such as <unk> and Alpha one.
Chemicals existing more regional European brand portfolio.
The integration of the Gateway and set Formula facility and the good start Brad also are on track we are progressing on in sourcing transition services currently provided by nationally and despite a voluntary recall in the quarter, we're continuing to leverage increased capacity from this facility.
To provide much needed supply of value based care and pharmacy.
More on infant formula.
Within our supply chain reinvention initiatives, we are on track to remove complexity from our operations through our winning portfolio strategy.
Which will result in the optimization more standardization on nearly 1000 skus by the beginning of 2024.
We had positive conversations with customers at last week National Association of chain drug stores NACS conference and look forward to partnering with them to increase customer service levels through increased operating efficiencies that will free up much needed capacity and the Paragon manufacturing system.
We also completed a pilot program using a system called <unk>.
Which will be an integral part of our enhanced Sir don't work system.
Alright, it sounds like cost effective software solution to provide real time overall equipment effectiveness bogey.
It provides management and monitoring information that the line operating level, we pilot I look at this as somewhat three manufacturing lines across the globe in tier one.
All three achieved increased productivity.
Above our expectations.
At a lower than expected costs. These are truly exciting results and we've begun the process of rolling rents are now across all of our global manufacturing sites.
As I mentioned earlier.
The FDA Advisory Committee meeting yesterday to discuss the potential switch.
This is an important day for all women and people in the U S antigen minimizes our commitments the women's health space.
The fda's approval of <unk>, OTC would increase access to safe and effective birth control, while allowing women to take control of their contraceptive needs on their terms.
While the FDA will be scrutinizing this application.
There are over 35 independent organizations voicing support Hello.
In the year 2023 women should have ready access to oral contraception.
As a reminder, the FDA advisory panel vote is nonbinding, we expect the agency to render a decision on approval later this year.
Okay.
Looking at our Q1 financial results.
We had a tremendous quarter as constant currency net sales grew 13% organic net sales grew six 4% despite unfavorable impacts of $2 seven and one three percentage points from two voluntary recalls and portfolio optimization initiatives.
And CSC.
Respectively.
Pricing in the quarter with five 5% and importantly volume grew 1%.
Gross margin improved by 400 basis points.
With nearly half driven by the legacy <unk> business.
And the other half attributed to higher margin acquisitions.
Year over year, adjusted diluted EPS grew an impressive 36% or plus 47% on a constant currency basis.
Success in the quarter was broad based.
Global consumer demand remained solid European consumption is robust and is that a four year high driven in part by a very strong cough cold season.
Our comp <unk> brand continues to see strong demand and share gains with consumer takeaway up 19% versus a year ago in the quarter.
Other areas, such as anti parasites and insect repellents are gaining market share and growing categories and we're positive drivers.
<unk>.
In the U S. Our oral care business is continuing to recover from the logistics and supply chain dynamics experienced last year.
Softer trends are very positive oral care consumption grew a robust 20% in the quarter and pair ago recaptured the number two share position in the categories. We compete in.
And in the U S. OTC, we gained share in higher margin digestive health and anarchy categories, driven by new products and distribution gains.
U S OTC organic growth in the quarter was up seven 3% versus a year ago and U S. OTC gross margin was 30% up 450 basis points.
Looking at our top line and a bit more detail, we achieved strong growth in both segments and nearly every product category.
Many of our investors are U S based so they gravitate towards the U S business. The CSPI, which is nearly 40% of revenues is really helping us drive the business grew 24% constant currency in the quarter, 11% organically.
<unk> consumption I, just noted was due to high incidences of cough cold and flu strong brand share gains the stickiness of our strategic price increases and the greater leverage from the stay HRA from the HRA Pan European brands.
The <unk> business has really come together beautifully.
We also once again experienced solid consumer demand in the U S, especially when you adjust for purposely discontinued low margin products from our SKU rationalization program and from divestitures, our OTC business grew 9% in the quarter.
In total, including a 200 basis points.
Unfavorable impact from SEIU rationalization, it's worth noting shipments to customers.
Later than consumption during Q1 in the U S as customers replenished inventories that were reduced below normal levels as they exited 2022.
We see Boston in the fourth quarter and is not unusual.
Other notable category movements in the quarter included women's health, which benefited from the addition of <unk> and other brands from the acquisition of HRA Skincare, which benefited from the addition of the comp and the Derma brand and increased manufacturing capacity for our monopsony O'hara regrowth products in the U S.
And then we're all care, which I just discussed.
Let's spend a minute on our CSC a nutrition business.
Net sales grew 10% in the quarter driven by strong growth in the contract infant formula business and an additional $36 million in sales from the good start acquisition.
As a reminder, this growth is compared against a very strong year ago period.
<unk> benefited from the infant formula shortage.
$36 million sales benefited from the good start acquisition includes an unfavorable impact of $9 million due to a voluntary recall of certain loss of Durbin start soon after formula.
Let me go into a little more detail here in March 2023, FDA released a national strategy and issued a letter to members of the infant formula industry too.
To assist in improving the microbiological safety of powdered infant formula.
This letter has significant impact on our manufacturing and cost to produce and the environment.
Of course, Teradata supports FDA and our submission to ensure food safety and promote nutrition for base.
So in response to Fda's, new strategy and evolving regulatory expectation, we are one making significant investments to further modernize our engine formula infrastructure and to modifying and are evaluating further adjustments to our manufacturing processes and procedures, including the refinement.
Patient procedures quality hold times and more as I said these actions will negatively impact supply and significantly raise the cost of producing it's informative.
The substantial cost of these new regulatory requirements will be offset with a price increase.
But even after the price increase we anticipate that Paragon store brand products will deliver consumers, an approximate 40, saving 40% savings per ounce as compared to the national brands.
Let me pull this all together.
I can't say enough how much parent has transformed over the past few years and how excited I am about our future.
Our fundamentals are strong and getting stronger as we continue to win market share our strategic acquisitions are having a big accretive impact our gross margin is expanding and we continue to optimize our operations and accelerate our strategic investments to drive outsized growth.
Over the next three years.
With that I'll turn the call over to our CFO to discuss financials in more detail and I'll come back in the end to wrap up before Q&A in order.
Thank you Marvin and good morning, everyone.
This mornings call I will provide some color on our Q1 financial results.
Through the drivers of our gross margin expansion highlights our cash flow and balance sheet metrics, and then wrap up with our 'twenty to 'twenty three guidance.
Starting with our GAAP to non-GAAP summary, the company reported a GAAP loss of $1 million for the first quarter or a loss of <unk> <unk> per diluted share.
Adjusted net income was $61 million and adjusted diluted earnings per share was 45 per share.
<unk> 33 per share in the prior year quarter.
A few adjustments to the quarter pretax non-GAAP P&L, Sally $71 billion worth.
Amortization expenses of $66 million.
Acquisition and integration related expenses of $4 billion, mainly related to the HMA and gateway facility and restructuring charges of $3 million, primarily related to our supply chain reinvention program.
Full details can be found in the non-GAAP reconciliation table attached.
So this morning right.
From this point forward all dollar numbers basis points in margin percentages will be on an adjusted basis.
Otherwise.
Yeah.
Thanks, Mario Randy provide the details for our top line results I will begin my comments at consolidated gross profit, which grew $84 million or 23, 3% in the quarter with our gross profit margins, expanding 400 basis points versus the previous year quarter.
Got it.
Growth was driven by acquisitions.
Is it pricing actions and favorable volume mix, which were partially offset by inflation two voluntary recalls the impact from the <unk> transition and.
Favorable impact of currency translation.
Operating income increased $33 million or 38% driven by favorable gross profit flow through which was partially offset by higher operating expenses due to inclusion of HRA and the gateway facility Nashville, the divested business.
Interest and other expenses increased $16 million due to last year's debt refinancing.
Jason with the HMA acquisition, which both closed in Q.
We also saw a benefit in our income tax rate.
300 basis points versus previous year due to changes in the jurisdictional mix of earnings.
Looking at the bottom line. These factors translated into an adjusted EPS of <unk> 45.
First quarter unimpressive started 6% increase compared to last year or 47% improvement on a constant currency basis.
Looking at Slide 16 first quarter gross margin improvement of 400 basis points was driven by both business segments. These was achieved through an equal split between the legacy <unk> business and the HRA and gateway acquisitions.
With inkjet gross margin in our OTC business grew an impressive 460 basis points driven by favorable mix on existing products benefited from new products and acquisitions and strategic pricing actions to offset inflation.
As Martin mentioned earlier, our U S. Oral care business is rebounding from the supply chain logistics dynamics.
Last year <unk> reached 360 basis points increase in gross margin driven by strategic pricing actions improved service levels and favorable customer mix.
These factors led to a 310 basis points expansion estimated gross profit margin, including on.
Including an unfavorable impact of 150 basis points from two voluntary recalls than before.
<unk> gross margin expansion of 470 basis points versus prior year was driven by contributions from the <unk> acquisition and strategic price increases, which more than offset the impact of inflation for us.
The gross margin expansion and prudent.
Unfavorable 90 basis points in fact from the HOA distribution transition.
Bringing these together for Gogo variable gross margin expanded 400 basis points versus last year, including a combined.
30 basis points headwind from the two voluntary recalls and the impact of the HRA distribution services.
We also achieved operating margin expansion across both segments in the quarter.
<unk> operating margin expanded 200 basis points compared to the prior year as gross profit flow through due to the factors I just discussed were partially offset by higher operating expenses, mainly related to the acquisitions of <unk> and the gateway facility and advertising and promotion.
<unk> core brands.
Now moving onto the cash flow.
Cash on hand was $563 million at the end of this first quarter down from $601 million at the end of the fourth quarter last year, we haven't been impacted by recent financial institutions. The stability in the us and Europe , and we have proactively taking actions to her too diverse.
Five our cash flow management amongst low risk financial institutions, we will continue to monitor these developments schools.
Operating cash flow for the quarter was $19 million a conversion of 32% in line with dollar phasing for the year, which we expect will be similar to last year.
As a reminder, we typically experienced the heaviest cash outflows in the first quarter driven primarily by annual employee incentives in.
In the quarter operating cash flow included outflows of $10 million from acquisition related and restructuring expenses.
We also invested $23 billion in capital expenditures and returned $36 million to our shareholders through dividends in the first quarter.
Looking ahead, we are still projecting 100% operating cash flow conversion to adjusted net income for the full year.
Also our net leverage over the trailing 12 months was five three times adjusted EBITDA down from five five times at the end of 2012.
<unk> continued its strong momentum in our business through Q1, we are reaffirming our 2023 guidance, which includes as Marty discussed.
<unk> costs in our <unk> business with pricing actions to offset these costs.
Additionally, tiny has shifted slightly distribution transitions from HOA to very low and we now expect to be unfavorable impacts from <unk> sales returns.
Q2, and Q3 to be similar to the <unk> feedback.
EPS impact in Q1 and minimal in Q4.
This is good news.
And it means dollar transition from distributor to direct sales is growing faster than originally planned and does not change. The total estimated earnings per share impact of 16 to 18 trends only at the time.
And we continue to provide updates and we will continue to provide updates each quarter on the progress we're making with these transitions.
Summing this up we now expect our second half EPS waiting to be slightly higher than discusses at our February investor day.
As a reminder, we actually <unk>, the Latin America, and <unk> divestitures at the end of Q1, and we will anniversary the <unk> acquisition during the second quarter.
Since joining the company last year I have been repeatedly impressed by our team's ability to adapt and overcome the face on numerous Chen from.
From a record inflation to logistics and supply chain issues. Our team continues to navigate in a dynamic.
Key partner this quarter is no different.
Top of our solid financial performance. We also eliminated almost all of the remaining tax overhangs on the company nearly $1 billion with only a minor cash impact to the company.
These overhang through my attention when I first joined variable and I'm extremely pleased to say that these are behind us I look forward to carrying this momentum forward through the rest of the year as we continue to make progress toward delivering on our strategic initiatives strengthening our business.
And delivering substantial growth in a dynamic environment.
Before I turn the call over on behalf of the entire operating committee.
Just like to say that he has been a pleasure working with humor.
The transformation that you have led during your tenure here is truly SaaS variable on a path for success and Im.
Would that not be more excited to drive our strategy forward. We wish you all the best in your retirement and thank you for your tremendous efforts over the past five years now.
Now back to you Martin for your closing remarks, Thank you Eduardo Thats Thats really at times.
Few comments on my retirement announcements before we move on to Q&A.
As you know I joined parent almost five years ago to lead the transformation of the company from a health care company to a consumer self care company.
Leading that transformation has been one of the most exciting assignments of my career.
From 14, M&A transactions to reconfigure the company's portfolio.
Near complete elimination of the companies $4 billion.
Accident legal overhang.
So the strategic path put in place to create value for the future I am proud of what my team the board support that's accomplished the.
The fact that this all happened in the face of a global pandemic global supply chain disruption the Russian invasion of your brand and the highest input cost inflation and decade makes the transformation that much sweeter.
All the pieces are now in place.
<unk> is growing its top line robustly, we've added over a 1 billion one $5 billion in revenues to our consumer businesses since the beginning of the transformation.
Dose growing and expanding its margins and is set up to continue to do that going forward.
And its growing its bottom line and in the first quarter I think we were right at the top are nearly at the top of our consumer peer group.
It has a strong plan in place to reduce leverage and the company has a clear strategic path for sustained long term growth.
Now is the right time for someone else to take the reins peridot and relentlessly drive the execution of our strategic plan for years to come.
I truly believe that we collectively have set up there to go for a bright future and to create tremendous values.
Mendes value for investors remember despite strong results parallel continues to trade at almost 50% discount versus its peer group.
And that's why even though I'll be retiring in and I will sell a portion of my paranoia holdings. The diversified I intend to remain a large individual shareholder a pair ago and will continue to be very tied to the success of the company.
I have set a target retirement date of the end of July .
And I'm working with the board on identifying a successor and ensuring a smooth transition.
Lastly, and most importantly.
I'd like to thank the pair ago employees, who have supported me through the transformation you are truly amazing and it's been an honor to lead you.
With that operator, we'll now take questions.
We will now begin the question and answer session.
To ask a question you May Press Star then one your Touchtone phone.
This using a speakerphone please pick up your handset before pressing the keys to.
To withdraw from the question queue. Please press Star then two.
At this time, we will pause.
Momentarily to assemble our roster.
Sure.
Okay.
Our first question will come from Susan Anderson with Canaccord Genuity you May now go ahead.
Hi, Good morning, Thanks for taking my question and congratulations on your retirement and great job setting the company up for future success.
Thank you Susan and good morning.
Yes, so maybe just I wanted to drill down a little bit first on the gross margin. The 400 basis points. I think you said 130 bips from the recall with the <unk> distributor I guess, how much of that was the infant formula and then also if you could maybe just give a little bit more color on the rest of the drivers there between.
Pricing mix maybe.
Maybe currency et cetera.
Okay.
Why don't I take the first part.
Rich I just wanted to sort of talk relative to the gross margin on that across the businesses and then you can break out the individual drivers so yes.
Gross margin from last year this year was.
Tom.
On <unk> 310 gross margin points I think if you look at it as an important part of our.
Excuse me it was up more than 300 OTC was up 450. So it went from $25 five last year to a 30% gross margin oral care went from 25, 3% to 28, nine 360, but nutrition.
Significant decline and it hasnt been a bigger decline in the fourth quarter to the first quarter and that was related to the recall I mean, yet.
Sure.
Big hits on that CACI actually about a 480 basis point increase so every part of our business expanded significantly from a gross margin standpoint.
It's progressing just as we expected, but you had this in the Nordic and quantify these on.
Purposefully with the HRA.
Not recall up moving from distributor to our own sales force and then you have to recall that 17.
$17 million or roughly.
<unk> of the business was so strong it covered it but I wanted to be very clear our margin programs are are working beautifully that or not.
Pricing driven there is some recovery, but there they are all the kinds of things that you want that will continue to expand and grow over time, especially as we have our highest margin businesses are growing the fastest.
The company now Jordan will get to your specifics on the drivers.
So talk.
Talking specifically there Susan so between the.
Uh huh.
The good start.
Impact.
As compared to two <unk>.
Last year, we had about 50 basis points, there and also on the inventory.
Transition on HRA.
About 40 basis points, and we also have around 40 basis points related to the OCC.
Recall that we that we announced there.
And so.
On the flipside pricing had a positive impact of about 300 basis points and volume and mix about 160 basis points.
Positively and those.
And by more than offset the impact we had on inflation and input cost that was about 230 basis points.
Okay, Great that was really helpful. Thanks for all the details.
And then on the infant formula business.
I guess do you expect there to be a sales impact it sounds like the rest of the year to with the changes from the FDA and then also how much will this pressure be on sales and margin and how long will it take you to get back in stock and just in terms of raising prices do you guys have an idea of what that will be and the timing.
And then I guess, you know pricing does increase across the category.
This is actually helpful to your private label business correct.
Yeah.
There was those were a lot of questions. So let me make sure.
However, if I don't get to every piece of it just as good at it.
Again.
Just go back here, a little bit I think it's probably a partner to say that this letter was.
Sort of a shock to the system. It is very well intended I'm not sure whoever wrote it fully understands the.
Impact of manufacturing output for the industry.
Especially during a period of time when there are shortages, but I wanted to be very clear that the pair of DAU quality control system did not break down during the first quarter. If it had been three weeks earlier prior to this letter coming out there would've been no recall so.
Quality control measures that were in place of how much product to throw away et cetera, If you will get anything any variation.
That had been in place for decades.
Would not have been a recall okay.
The FDA, given what happened last year and pressure from Congress and others.
Tried to raise safety up to another level very admirable, but it has.
And that's what you're you're talking about now so we are.
Full plant standardization and shutdowns and there'll be more of them. It will have a negative input on product, but all of that including the sales will be offset by the pricing. Okay. So what you lose in a little bit of volume you're going to gain an additional pricing and costs.
We still see it as making our original plan on the infant formula business, so it'll be a little bit more back loaded.
Pricing here.
We don't we're not pricing relative to the competition, we are pricing to offset this higher cost.
Lac and lower productivity.
And.
But it just so happens that after the pricing that is necessary to do that will be about 25% on our price value business.
<unk> business will be about 25% cheaper on an absolute unit, we give away a couple more ounces.
On a cost per ounce basis will actually be at.
A 40% discount after.
Pricing.
Customers hate price increases I, just spent five days of Nics, our biggest conference.
They all understood. This.
They understood that there was a change in that.
That we have to be able to produce and make a margin because they understood that we weren't expanding margins on this we were just literally addressing this regulatory change so.
I think it'll be very well supported him nobody likes pricing when you're a value competitor, but in this case, it's absolutely necessary.
We will sell that through I'm, not I'm not worried about that so.
Yes, I think I've answered all your questions.
Yeah, that's great. Thanks.
And then just really quick on the on your inventory levels and then also at retail I guess are there certain categories.
<unk> had more of an how is your ability then to get back and start quickly.
Depends on the category, we're making we're making progress but.
I've heard of and I heard at Nics too I've heard of a lot of categories out there where they are fully back in inventory or even inventories could be a little high and thats not the case for us yet.
We shipped a little bit more than we.
That was consumed during the first quarter, but we're still a week and a half on average.
LOE in inventories at the retail level and Thats before we began to build our own safety stock. So.
Listen, it's really right now for the company.
Our productivity is doing beautifully in the manufacturing facilities, we are running at record levels.
We have two issues in terms of getting our inventories back half calls and that's because again last year, we had elevated cough cold season right through this summer, which is supposed to be our down season, where rebuild inventories.
Are we're running again at record levels, especially on liquids and pediatric liquids was an area of concern over the past four or five months.
Based on the way the illness trackers are going and trending we should be back in business with safety stocks.
For the fall cough and cold season next year.
So the other business as I said is nutrition and you know on that.
Nutrition basis.
There is going to be some working through this new regulatory guidance that is.
With additional sand at both plants amortization that and.
Longer quality holds in order to comply.
Take some time before we can get inventories back so.
What has been a challenge for the last 18 months.
It's probably been now extended I can't put a time on it but.
C N ended side, yet so when we are fully back in.
And our safety stock position on nutrition, but the good news is we did buy the other facilities. So we have a lot more product to work with.
And we are making those investments we're not backing off those investments and within another year, we should have enough additional 7 million pounds.
Capacity so.
And on the rest of the business, we're back up to service levels and service levels are not a concern in Europe or in the Ninety's and the U S. Other than nutrition and cough cold I think we're back in the most recent weeks back into the Ninety's again too so.
Everything is going in.
In the right direction.
Okay, great and if I could just ask one more on the suites that comment Oh pill.
Curious just any thoughts you could give around that on.
Now youre going to think about this and then also if it is approved your thoughts around just the market opportunity in the U S is this going to basically add to the market or will it take some of that share.
And then any color you could give on the timeline to launch.
Impact to the P&L. Thanks.
Well I.
I think I read in your note, but is it is not and I think everybody knows that at Investor day, It's not in our current modeling, it's not an or any of the guidance. We've given over the next few years because as.
Youre talking birth control and this is a big change having.
So it's only upside and I think we've been giving a year one estimate of roughly 100 million in and revenues.
By the time, the FDA got into a position.
Thanks.
Next two or three months for them to make a decision once they review all the data on what the advisory.
<unk> has to say about it.
And the very end of the year or beginning of next year I don't think we have.
At that date, yet it depends how the FDA when they come to their their decisions.
Any implications of those but.
Philosophically, though this is a product that has been on the market since the 19 sixties, there is reams and reams and reams of safety data.
And when taken in whole, we believe the FDA should approve this application.
Periods, there theres a lots of push back in there, which is their job and that's what they're supposed to do and we have many extra emerge there'll be testifying and we'll see how it comes out ultimately.
We believe this will get approved and hopefully gets approved this time through but again, that's not in our numbers. This year next year.
It's all upside, but this is a big idea for the company and we're real excited about women's health.
Great. Thanks, so much good luck the rest of the year.
Thank you.
Our next question will come from Fred Schott with J P. Morgan.
May now go ahead.
Hi, This is Ethan brown on for Chris Schott, Thanks for taking my question.
I guess first off you already talked about this a bit.
But on the nutritional segment, just how do you think about sales growth for the rest of the year as we move past the infant formula shortages.
Drops in the quarter, and then with the FDA update as well.
Okay well.
Lets start with remember last year, the way our business slowed we.
Yeah.
Drift our safety stocks last March and April a little bit of February but March and April were huge spikes and then after that.
Well once we had no safety stocks and we actually had challenges as the year progressed.
On our base business keeping.
Keeping up and.
And running what was we have on our Vermont facility older equipment.
It really pushed that and we struggled in the back half of the year. So I think it's just it's going to be a bit lumpy, but I think this will be a growth year.
And it's not like we're going to be giving back at a time.
When we went into buying national a week, we had estimates of tens of millions of pounds of unmet demand even with.
The naphthalene facility in here, it's not a demand question. It's a question of how much can we make and how much can we make under the new regulatory guidance.
And the dollar so I.
I don't have the forecast in front of me right now Brad can give you those numbers later, but.
We are not backing off plan, but from a flow standpoint.
The pricing of it sort of the middle of the year the back half will get.
Bumped up because of it there was a it was depressed in the back half of last year. So you don't have some big growth rates.
From we'll call it May June July .
Onwards of it till the end of the year in infant formula, which is driving our nutrition numbers.
Thank you that's great and then on pricing outside of the nutritional segment due <unk> results reflect most of the planned pricing actions or can we think about some further price opportunities as we move through the year.
Well, it's a two part answer right. It is.
The second is the first is that it took us almost a mid year. We were a touch you know when you look at the traditional CPG companies on national brands in the U S and I'm only talking in the U S. There.
Our international business is similar to any branded company, but in the U S. You have to negotiate with customers on store brands and we lagged in the beginning because most of our price increases didn't go into the midyear, so you're going to still get a pretty strong benefit I would suspect in the in the second quarter of this year.
Year on.
Most of ours, and then Youll start.
To lap some of those.
The Great News is we have learned through this whole crisis, when we need to to price for cost.
We can get that done.
So.
I'm not going to answer your question right now you pay me as CEO . So I have a toolbox and sometimes I go to pricing and sometimes I go to cost and sometimes I go to new products and innovation that sometimes I go to M&A and sometimes they go to supply chain reinvention and sometimes I go to capital struck.
Sure.
But real.
We will continue to look at which opportunities make the most sense to deliver on the guidance I truly believe that paradox sitting at.
Where it is in terms of its metrics at a 50% discount.
On valuation is all about credibility right now.
Delivering on more on the numbers. So we will use any lever we have to to try to consistently perform in <unk>.
And deliver the promises we made for the year end and then I think everybody is going to benefit from that including me and my lovely retirement so.
And then maybe one last one for me can you just talk about the trends youre seeing on the private label versus National brands, given the current macroeconomic environment and anything notable to keep in mind there.
Thank you.
Yeah.
Eduardo or Brad feel free to jump in here, but what I see as our volumes growing and their volumes declining you don't see the dollar swing of down trading as much because they're more aggressive on pricing.
I don't want a price if I don't have to that's our competitive advantage, we want to have a good discount versus national brands and with good gross margins and then grow market share over the long haul as partnership with are our customers. So you see.
Clearly most national brands et cetera have priced more aggressively than us.
But on the other hand, we used to be in a situation where we were.
Having product made giving price concessions now we've gotten first to stabilization in our ability to price for growth.
When necessary as a result of all of that we are gaining market share in volume.
Meaning consumers are downgraded.
Thanks Nathan.
Again, if you have a question. Please press Star then one.
Our next question will come from Daniel <unk> with hedge.
You May now go ahead.
Thank you Maria on your well earned retirement I take it you are also retiring from the board.
Correct.
<unk>.
Okay, and then I was wondering if you could quantify the product shortage impact on the <unk>.
Upper respiratory segment.
That wasn't if it was lost sales or you consider just delayed.
No.
Lost sales right now we were.
Okay.
Brad if you have a.
Number less I just saw that we had.
Our forecast of I think about 25 million for the first quarter, we shipped about 25% more than that but we had orders that we could double that again.
Hi.
I don't want to be too specific, but it's kind of a 25 or $30 million additional land and Costco and aren't being really back of the envelope.
Here, but the point is is we had elevated levels and as much as we could have made we could add.
<unk> shift now people buy it for the cough cold season, so they had to buy something so again R.
Our cough cold numbers were up.
And our production in the factories was up significantly that did a brilliant job, but there were still more demand than even even that.
That's why I'm. So excited we haven't really talked about it this morning, but that's why I'm. So excited about this supply chain reinvention and what I've talked about on the call of the simplification of over 1000 and standardization of over 1000, Skus because what that does in combination with Red zone is it increases capacity.
Because it wasn't.
We can continue to grow and build market share, but we are mindful of our return on invested capital and we don't want to do.
Maybe just adding equipment and lowering price isn't getting no return for that so this is sort of elegant solution to be able to so where we see a path to 25% to 50% more capacity in our cold cough business through these this supply chain reinvention.
And standardization and simplification on less line changeovers, and better operational effectiveness of leather throw away and all those good things that are part of this program and and I'm excited to say on those re test lines. We did in the first quarter, we got that increase in operational effectiveness. So that that's what we're pushing for.
Did we do we get it back.
We can get it back next cough cold season, when we blend it out it shows the potential is there, but it's not like it got pushed for a quarter.
Alright. Thank you Mary and then just following up on that what are your initial conversations with your customers about reducing some of the skus.
Ben.
What you had expected or has there been no no it's better than expected but.
We're going for the low hanging fruit first and.
If you've listened to Eduardo speak on this the low hanging fruit is the part that is not consumer facing so anti complexity between customers. It will be a more difficult decision. When you are talking about what consumers actually see in terms of the number of pills and the bottle or the size.
Bobby.
File et cetera, but 80% of the complexity, we have now believe it or not.
Is not consumer facing so it is one customer who is label as an ace or an inch bigger than another one but you have to and it's not even perceivable to the eye, but we have to stop the line and do a major changeover for the new label size or it could be.
Slightly different bottle side, where we're really matters as part of guidance you've got the outer corrugated the thickness of it.
The dimensions of it might be a quarter inch and hey financially half an inch inside it can be packaged three's shrink wrapped together six shrimp back together nine shrink drive together 12 drank without the other whereas the national brands I only get two variations and overtime pair ago.
Being a specialist complexity and customization.
Built all this complexity into its system working with customers, but certainly no unrealized how much complexity. It at it. So again I gave this example at Investor day, but because of that complexity. We can't use automatic case factors in the year 2023 that is not.
<unk>.
And everybody agrees that you can get to like a standardized outward Barton.
But I've been in front of us.
Same thing with label sizes, and all of that and they're like Wow, We didn't even know we were different on those kinds of things so that first thousand.
Skus with easier it'll be years, it'll be we'll be doing this for the next two or three years, where then we go back and say hey, listen everybody ought to be in 225 calendar set of medicine, not somebody is 200 somebody.
A.
You know when we can we can still shrink wrapped together into bigger sizes, but we need to standardize as much as possible and because we are a branded company, whether it's store brand or national brand at the heart of when we get to the.
The consumer facing is a massive consumer study that we did that will guide us.
What consumers want when they go to the shelf, which is frankly not to have to get out to calculate our new map. They wanted to look at and see the products no. It's comparable to the national brand that it will work as well be just as safe and cost less.
Thank you.
That's all we have time for and marks the conclusion of our question and answer session.
I'd like to turn the conference back over to Murray Kessler, President and CEO for any closing remarks.
Yeah.
Once again, thank you for your interest in <unk>.
Thank you for support.
Best thing in the business and believing in May whether it was here at teradata or lorillard or U S T.
It's been a heck of a <unk>.
Ron.
Hope to see as many of you as I can before I actually say my final goodbyes, but.
I've worked hard for you and I can tell you that everybody in parallel we will continue.
So we work hard for you.
And then make your trust in US pay off then over the <unk>.
Medium short long term all of it. So thank you again for your interest in Paragon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.