Q1 2023 Perrigo Company PLC Earnings Call
It will be at a chance to review our releases issued this morning, a copy of the earnings release and presentation for today's discussion are available within the Investor section of the Paragon 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.
A few quick items before we start first unless stated all financial results discussed and presented on a continuing operations basis. They.
They do not include any contributions from the divested Rx business, which was 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 and third marriage discussion.
It's 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 at parallel in a warm felt congratulations on his retirement.
Where are your Mentorship and leadership has been invaluable and you're upset 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 Brett and thank you everyone for joining us this morning.
Many of you likely attended the virtual Investor Day, we hosted at the end of February where we provided details of the next phase of our strategy, what we are calling optimize and accelerating.
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 parent Orlando and 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 for the HRA and Gateway good start brand acquisitions and there are already realizing significant benefits from both.
We are progressing faster than I expected on supply chain reinvention and I've seen some exciting results in the early stages more on this in just a moment.
And I'm proud to say that paradox women's health team is starting its presentation to the FDA Advisory Committee today for a potential first in class Rx to OTC switch of the phone pill oral contraceptive.
Underpinning the progress across our strategic initiatives, our strong financial results and business fundamentals.
The Echo comments from my general managers at our quarterly business reviews. After two years of unprecedented volatility we are seeing our business become more consistent and predictable again.
That predictability manifested itself in the first quarter, we're paranoid 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.
Resolving the entire April 2019, Athena tax assessment of $843 million.
Dollars.
No payment was required and this assessment is now completely dismiss.
We also just settled the interest rate tax assessment with the IRS and have now cleared the decks and dramatically reduced uncertainty in the pair ago investment fees.
As I just touched on benefits from recent acquisitions are not only turbocharging, our financial results, but are also creating greater leverage across the teradata portfolio.
And H are aimed at delivering on our revised higher synergy targets, we remain on track with the H or any distributor conversion into Parados direct sales model, which will deliver significant ongoing cost savings once complete.
As I discussed on previous conference calls there was an approximate $32 million one time impact to operating income in 2023 associated with returning inventory from distributors of this annual estimate 12 million top line and five cents in the U T S impacted the first quarter.
As expected.
Importantly, we're realizing greater leverage on our legacy U S. C&I business as our sales force is malleable to combine strong pan European brands, such as Comcast and Alpha one with like parrot goes existing more regional European brand portfolio.
The integration of the Gateway, it's a formula facility on the good start Brown also were on track.
We are progressing on in sourcing transition services currently provided by Nestle 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 infant formulas.
More on infant formula in a few minutes.
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 of nearly 1000 S. K used by the beginning of 2024.
We had positive conversations with customers at last week's National Association of chain drug stores N. I C. D. S 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 the Red zone, which will be an integral part of our enhanced or don't work system.
The Red sounds a cost effective software solution to provide real time overall equipment effectiveness or E.
It provides management and monitoring information that the line operating level, we've tightly I live as a system on three manufacturing lines across the globe in Q1.
All three achieved increased productivity above our expectations and at a lower than expected costs. These are truly exciting results and we've begun the process of rolling rents throw them out across all our global manufacturing sites.
As I mentioned earlier.
The FDA Advisory Committee meeting begins today to discuss the potential switch Oh pill.
This is an important day for all women and people in the U S and in the pit of minds is our commitment to the women's health space.
The fda's approval of uphill O T C. What 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 of Oak Hill.
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.
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 2.7, and 1.3 percentage points from two voluntary recalls and portfolio optimization initiatives and C. S V E respectively.
Pricing in the quarter was five 5% and importantly volume grew 1%.
Gross margin improved by 400 basis points.
With nearly half driven by the legacy Paragon 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 broadbased, while global consumer demand remains solid European consumption is robust and is that a four year high driven in part by a very strong cough cold season.
Our comp he's 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 in growing categories and we're positive drivers of C. S. C. I grew up.
In the U S. Our oral care business is continuing to recover from the logistics and supply chain dynamics experienced last year as sales and consumption trends are very positive oral care consumption grew a robust 20% in the quarter and pair ago recapture.
The number two share position in the categories we compete in.
And in the U S O G. C. We've gained share in higher margin digest adult and anarchy categories, driven by new products and distribution gains.
No U S O T see organic growth in the quarter was up 7.3% versus a year ago and U S. O T. C. Gross margin was 30% up 450 basis points.
Looking at our topline in 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 fitness, but C. S. P. I want to just nearly 40% of revenues, it's really hitting a stride.
The business grew 24% constant currency in the quarter, 11% organically.
A strong U consumption I just noted what's 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 HR a from the HRA Pan European brands.
Let's see Sci 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 S. K U rationalization program and from divestitures, our OTC business grew 9% in the quarter.
In total, including a 200 basis point unfavorable impact from S. K U rationalization, it's worth noting shipments to customers were greater than consumption during Q1 in the U S.
As customers replenished inventories that were reduced below normal levels as they exited 2022.
It's something we see often in the fourth quarter and it's not unusual.
Other notable category movements in the quarter included women's health, which benefited from the addition of Ela, one and other brands from the acquisition of major right.
Skin care, which benefited from the addition of the comp and the Derma brands and increased manufacturing capacity for our minoxidil hair regrowth products in the U S and the world care, which I just discussed.
Let's spend a minute on our C F C 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 that benefited from the infant formula shortage.
The $36 million sales benefited from the good start acquisition includes an unassailable impact of $9 million due to a voluntary recall of certain lots of the gerber. Good starts soon from infant formula.
Let me go into a little more detail here in March 2023, FDA released a national strategy and issued a letter to the members of the infant formula industry two in to assist in improving the microbiological safety of powdered infant formula.
This letter has a significant impact on our manufacturing and cost to produce infant formula.
Of course, Teradata supports F D. A N a submission to ensure food safety and promote nutrition for babies.
So in response to Fda's, new strategy, and an evolving regulatory expectations.
You have one making significant investments to further modernize our infant formula infrastructure and to modifying and are evaluating further adjustments to our manufacturing processes and procedures, including refinements to sanitation procedures quality hold times and more.
These actions will negatively impact supply and significantly raised the cost of producing infant formula.
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 who 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 offer or 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 the doorknob.
Thank you Maureen and good morning, everyone.
This mornings call I will provide some color on our Q1 financial results walk 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.
When you reported a GAAP loss of $1 million for the first quarter or a loss of one cents per diluted share.
Adjusted net income was $61 million and adjusted diluted earnings per share was 45 cents per share versus 33 cents per share in the prior year.
A few adjustments to the quarter pretax film GAAP P&L Sadly $71 billion of war.
Amortization expenses of $66 million.
Physician and integration related expenses of $4 million, 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 to this morning's press release.
From this point forward all dollar numbers basis points in margin percentages will be on an adjusted basis unless stated otherwise.
Yeah.
Thanks, Mario Randy provide the details for our top line results will be.
In my comments that 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.
Growth was driven by acquisitions strategic pricing actions and favorable volume mix, which were partially offset by inflation two voluntary recalls feedback from day to raise distributions for institution and the unfavorable impact of currency translation.
Yeah.
Operating income increased $33 million or 38% driven by favorable gross profit flow through which was partially offset by higher operating expenses due to the inclusion of HRA and the gateway facility Nashville, the divested business.
Interest and other expenses increased $15 million due to last year's debt refinancing associated with the HMA acquisition, which both closed in Q2.
We also saw a benefit in our.
Our income tax rate of 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 cents in the first quarter, an impressive 36% 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.
He was what was achieved through an equal split between the legacy <unk> business and the HRA and get away.
We didn't see a gross margin dollar old UC business grew an impressive 450 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 Super Chan with just the dynamics.
Appearance last year, and I called 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. She has created a gross profit margin including on them.
The unfavorable impact of 150 basis points from two voluntary recalls than before.
GAAP gross margin expansion of 470 basis points versus prior year was driven by contributions from the age or the acquisition any strategic price he agrees, which more than offset the impact of inflation and of course the.
Gross margin expansion, including an unfavorable 90 basis points in fact from the H or any distribution transition.
Bringing these together for Philco variable gross margin expanded 400 basis points versus last year, including a combined I'm, a 30 basis point headwind from the two voluntary recalls and the impact of the HOA distribution transition.
We also achieved operating margin expansion across both segments into court.
Variable breaking 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 HOA and the gateway facility, and that's where pricing and promotion.
First Vince you know corporates.
Now moving onto the cash flow.
Cash on hand was $563 million at the end of the first quarter.
<unk> from $601 million at the end of this fourth quarter of next year.
Haven't been impacted by recent financial institutions, the stability in the U S and Europe , and we have proactively taking actions to work to diversify our cash flow management amongst low risk financial institutions, we will continue to monitor or abuse development in 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 the quarter operating cash flow included outflows of $10 million from our completion related and restructuring expenses.
We also invested $23 billion in capital expenditures.
And we started with $36 million to our shareholders through dividends in the first quarter.
Looking ahead, we're still projecting 100% operating cash flow conversion to adjusted net income for the full year.
Also our national average over the trailing 12 months was five three times adjusted EBITDA down from five five times at the end of 'twenty two.
<unk> continued its strong momentum in our business through Q1, we are reaffirming our 'twenty to 'twenty three guidance, which includes as Marty discussed higher costs come in hours yesterday infant formula business with pricing actions to offset these costs.
Additionally, finding has shifted is likely distribution transitions from HOA into very low and we now expect to be a favorable impact from eatery sales returns in Q2, and Q3 to be similar to the <unk> feedback.
Yes impacting Q1 and minimal in Q4.
This is good news that means.
And with me in the cellar 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 cents only design.
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 aren't very sorry, India, Latin America, and <unk> divestitures at the end of Q1, and we will anniversary in Detroit acquisition during the second parts.
Since joining the company last year I haven't been repeatedly impressed by our team's ability to adapt and overcome in the face of numerous challenges.
From a record inflation to logistics and supply chain issues. Our team continues to navigate in a dynamic.
Thank you Mark this quarter is no different.
On top of our solid financial performance. We also eliminated almost all of the remaining Baxter overhangs on the company.
Nearly $1 billion with only a minor kashi back to the company.
These overhang through my attention when I first joined variable and I'm extremely pleased to say that you've got it 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 dynamic.
And how many people are in there.
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 Youll have led Dura York banner here has truly set variable on a path for success.
And then could not be more excited to drive our strategy forward with.
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 have a door to us that's really time.
A 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.
The near complete elimination of the companies $4 billion.
Some legal overhang.
So the strategic path put in place to create value for the future.
I am proud of what my team the board supports has accomplished.
The fact that this all happened in the face of a global pandemic level from supply chain disruption that Russian invasion of your brain and the highest input cost inflation and decade makes the transformation that much sweeter.
All the pieces are now in place.
Paragon is growing its top line robustly, we've added over a billion one $5 billion in revenues to our consumer businesses since the beginning of the transformation parados growing and expanding its margins and is set up to continue to do that going forward.
And it's growing is bought online in the first quarter and 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 arago 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 it creates 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 again and I will sell a portion of my favorite of holdings, a 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 and 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 you touched on something.
Excuse me Speakerphone, please pick up your handset before pressing the keys.
To withdraw from the question queue. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
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.
Great job setting the company up for success.
Success.
Thank you Susan and good morning.
Yeah. 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 more color on the rest of the drivers there between.
Pricing net maybe currency et cetera.
Okay.
Why don't I take on the door to the first part.
Which I just wanted to sort of talk relative to the gross margin on that book across the businesses and then you can break out the individual drivers. So the you know the gross margin from last year to this year was up.
On C N C. A 310 gross margin point, so I think if you looked at us important barnhart.
Excuse me it was up more than 310 OTC was up 450. So it went from 25 five last year to a 30% gross margin oral care went from $25 three to 28, nine 360, but nutrition.
Significant decline and it hasn't even been a bigger decline from the fourth quarter to the first quarter and that was related to the recall I mean you have.
Or a big hits on that CSP I actually about a 480 basis point increase so every part of our business expanded significantly from a gross margin standpoint, and is progressing just as we expected, but you had hits in the Nordic and quantify these on.
Purposefully with EHR a.
Rick I'm not recall of moving from distributor to our own sales force and then you had to recall that you had 17.
$17 million or roughly <unk> 10.
<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.
You know pricing driven there is some recovery, but there are all the kinds of things that you want but it'll continue to expand and grow over time, especially as we have our highest margin businesses are growing the fastest in.
The company now the Jordan well get to your specifics on the drivers yeah. So.
Talking specifically there Susan so between the.
Good start you know impact.
As compared to two last year, we had about 50 basis points, there and also on the inventory.
Transition on the tray.
About 40 basis points, and we also have around 40 basis points related to the OCC.
Recall that we actually announced there and so on.
On the Flipside, you know pricing has a fall television bag of about 300 basis points and volume and mix about 160 basis points.
All Sibley and those combined more than offset the impact we had on inflation and input cost it was about 230 basis points.
Okay, Great that was really helpful. Thanks for all the detail.
And then on the infant formula business.
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.
Yes.
Is actually helpful to your private label that's correct.
Yeah.
So those were a lot of questions. So let me make sure I cover them up I don't get to every piece of it just to ask it again, but let's 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 and fully understand the.
The impact of manufacturing output for the industry.
Especially during a period of time when there are shortages, but I I want to be very clear that the para go quality control system and 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 the quality control measures that were in place of how much product a throw away et cetera, If you will get anything any variation.
That had been in place for decades.
There would not have been a recall okay.
The FDA given what happened last year with pressure from Congress and others have.
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 full plant standardization and shutdowns will be more of them it'll 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.
All pricing and cost down and we still see it as making our original plan on the infant formula business. So it'll just be a little bit more back loaded.
Pricing here.
We don't we're not pricing relative to the competition were Friday swing to offset this higher cost and lack and lower productivity.
And but it just so happens that after the pricing that is necessary to do that will be about $25 when our price value business.
<unk> business will be about 25% cheaper on an absolute unit, we give away a couple more ounces. So on a cost per ounce basis will actually be at a.
40% discount after so.
The pricing and customers hate price increases I. Just spent you know five days of N C. D S. Our biggest conference.
They all understood. This.
They understood that there was a change in that that we have to be able to produce them and make a margin because they understood that we weren't expanding margins on this when you were just literally addressing this regulatory change. So I think it'll be very well supported him nobody likes pricing when you're Oh.
Your competitor, but in this case, it's absolutely necessary.
We'll sell that through I'm, not I'm not worried about that so.
Yeah, 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. You wish you had more than how is your ability then take it can start quickly.
Depends on the category, we're making we're making progress, but you know I've heard of and I heard it M. A C. D. S. Two 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 that's not the case for us yet where we we ship.
A little bit more you know then we.
Was consumed during the first quarter, but we're still a week week and a half on average of low end inventories out at the retail level and that's 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 coal and that's because again last year, we had a 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 stock in.
For the fall cough and cold season next year.
So the other business as I said is nutrition and you know and you know.
Our nutrition spaces.
There's going to be some working through this new regulatory guidance that is with additional sand at full plant standardization that and longer quality holds in order to to comply and it'll take some time before we can get inventories back. So we're.
We're talking what's been a challenge for the last 18 months.
It's probably been now extended I can't put a time on it but I don't see an end in sight yet so when we are fully back in and in our safety stock position on nutrition, but the good news is we did buy the 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 you know 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 in the U S. Other than nutrition and cough cold and I think we're back in in the most recent weeks back into the Ninety's again too. So it you know every everything's growing in the in the <unk>.
Right direction.
Okay, great and if I could just ask one more on the fleets that are common hotel.
I'm curious just any thoughts you could give around that on you know how youre going to think about this.
And then also if it is approved your thoughts around just the market opportunity in the U S. It is this is 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 them.
Impact to the P&L.
Well no.
I think I read in your note, but if it is not and I think everybody knows that in 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 you know.
You're talking birth control and this is a big change having so its only upside and I think we've been giving a year one estimate of roughly 100 million in and revenues.
By the time, you know the FDA got into a position.
I think the next two or three months for them to make a decision once they renewal.
The data on what the advisory.
Panel has to say about it.
We're talking in the very end of the year or beginning of next year I don't think we have.
Set that date, yet it depends how the F D a.
When they come to their their decisions on any implications of those but you know like 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 on this and when taken as a whole we believe the FDA should approve this application.
Period, 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 works there'll be testifying a well see valid that comes out ultimately.
We believe this will get approved and hopefully it gets approved this time through but again, it's not in our numbers this year and next year.
Hum it it's all upside but this is 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 you 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.
<unk> our business slowed we.
Oh, you know more stripped our safety stocks last March and April a little bit of February but March and April were huge spike 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 up and and running what was you know we have on our Vermont facility older equipment.
You know it really pushed that and we struggled with in the back half of the year. So I think it's just it's gonna be a bit lumpy, but I think this will be a growth year.
And you know, it's not like we're gonna be giving back at a time when.
When we went into buying nationally a week, we had estimates of tens of millions of pounds of unmet demand even with the naphthalene facility in here. It's 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 don't have a 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 sort of the middle of the year the back half old yet.
Bumped off 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.
You know from we'll call. It May June July onward until the until the end of the year in infant formula, which is driving our our nutrition numbers.
Thank you that's great and then on pricing outside of the nutritional segment due one curious adults reflect most of the planned pricing actions or.
Or can we think about some further price opportunities as we move through the year.
Well you know, it's a two part answer right. It is.
Second is first is that it took us almost a mid year. We were a touch you know when you look at our you know the traditional CPG companies on national brands in the U S and I'm only talking in the U S. Here, our international businesses similar to any branded company, but in the U S. You have to negotiate.
Share with customers on store brands, and we lagged in the beginning because most of our price increases didn't go into the mid year, So you're going to still get a pretty strong benefit I would suspect in the in the second quarter of this year on all of them most of ours and then you'll start to.
To lap some of those.
Hum.
Great News is we have learned through this whole crisis, when we need to in a price for cost we can get that done.
So you know I'm not going to answer your question right now you pay me as CEO . So you know I have a toolbox and sometimes I go to pricing and sometimes I go to caught up and sometimes I go to new products and innovation that sometimes I go to M&A and sometimes I go to supply chain reinvention and sometimes I.
Go to the capital structure.
But you know, we'll we'll continue to look at which opportunities make the most sense to deliver on on the guidance I truly believe that pair ago sitting at from where it is in terms of its metrics at a 50% discount.
On valuation is all about credibility right now and delivering on more on the numbers. So we'll use any lever we have to to try to consistently perform end and deliver the promises we made for the year end and then I think you know everybody is going to benefit from that including me in.
My lovely retirement.
Yeah.
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 I I.
You know it would be you know, a daughter or Brian 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 you know a good discount versus the national brand and with good gross margins and then grow market share over the long haul as partnership with are our customers. So you see you know 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 made giving price concessions now we've gotten first just stabilization in our ability to price for growth.
When necessary as a result of all of that we are gaining market share and 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 Powell biopsy was hedged.
You May now go ahead. Thank.
Thank you Maria on your well earned retirement I take it you're also retiring from the board.
Correct, that's that automatically happens yet okay.
Okay, and then I was wondering if you could quantify the product shortage impact on the sea FCA upper respiratory segment.
What that was and if it was lost sales or you consider just delayed.
Now there are lost sales right now we were Oh yeah.
Trying to read if you have a number less I just saw that we had.
Forecast of I think about $25 million for the first quarter, we were shipped about 25% more than that but we have a winner that we could've double that again so.
So I you know I don't want to be too specific but it's kind of a 25 or 30 million additional land and cough cold and hot and 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 have.
<unk> shift now you know people buy it for the cough cold season, so they had to buy something so again our R. R.
Cough cold numbers were up.
And our production in the factories was up significantly that did a brilliant job, but there was still more demand than even even that and.
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 you know.
We can continue to grow and build market share about but we're mindful of our return on invested capital and we don't want to you know to maybe just adding a equipment and with lowering price isn't getting no return for that so this is you know sort of a elegant solution to be able to show, where we see a path to.
25% to 50% more capacity in our cold cough business through these this supply chain reinvention, and 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.
And those three test lines, we did in the first quarter, we got that increase in operational effectiveness. So that that's what we're pushing for so 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 has it been.
You had expected or.
Have there been.
No no it's better than expected, but you know.
We're going for the low hanging fruit first and.
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're talking about what consumers actually see in terms of the number of pills and the bottle or the size.
The body, it's vital etcetera, but 80% of the complexity, we have now I believe it or not.
It's not consumer facing so it is one customer who's label as an ace or an inch bigger than another one but you have to you know 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 you know a slightly different model.
Size, where we're really matters as part of it is you know 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 American together nine shrimp drive together 12 linked brought together, whereas the national brands and I'm going to have to Bury Asian, and overtime pair ago being a specialist complexity and customization.
Built all this complexity into it system working with customers, but certainly no one realized how much complexity. It out. So again I gave the example at Investor day, but because of that complexity. We can't use automatic case factors and it's the year of 2023, that's not and everybody agrees that you can get to.
A standardized outer carton and at least that I've been in front of a man and the same thing with label sizes and all of that and they're like Wow. You know we didn't even know we were different on those kinds of things. So that first thousand U S. Skus, it's easier it'll be years it'll be it won't be doing this for the next two or three years, one of them to go back and say hey listen everybody.
I want to be in.
225, count is that a matter of fame not somebody with 200 somebody a trip that they.
You know when we can we can still shrink wrapped together and get 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 in what consumers want when they go to the shelf, which is frankly not to have to get out of the calculator and do math. They wanted to look at and see the products no. It's comparable to the national brand that it'll work as well.
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 would like to turn the conference back over to Murray Kessler, President and CEO for any closing remarks.
Yeah, just once again, thank you for your interest in Paragon.
Thank you for support and investing in the business and believing in me whether it was here at Paragon or lorillard or U S. T is.
It's been a heck of a run and I 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 at Paragon will continue to work hard for you and and then.
Make your trust in us.
They often over the you know the.
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.