Q1 2024 Perrigo Co PLC Earnings Call
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Speaker Change: Good morning, ladies and gentlemen, and welcome to political first quarter G. Does some 24 fitness yoga Schwartz collections calls.
Operator: Your conference will begin shortly.?? [inaudible] Good morning, ladies and gentlemen, and welcome to Parago's First Quarter, 2024 Financial Results Conference Call. At this time, all lines are in listen only mode.
Speaker Change: At this time all lines in listen only mode. Following the presentation, we will conduct a question and answer session.
Operator: Following the presentation, we will conduct a question and answer session. If at any time during this call you require any assistance, please press star zero for the operator. This call is being recorded on Tuesday, May 7, 2024. I would now like to turn the conference over to Brad Joseph, VP of Global Investor Relations. Please go ahead.
Speaker Change: If at any time during this call will be quite an needed assistance. Please press star zero for the operator.
Speaker Change: This call is being recorded on Tuesday may seven 2024, I would now like to turn the conference over to Brad Joseph VP Investor Relations. Please go ahead.
Bradley Joseph: Good morning, and good afternoon, everyone. Welcome to Paradise first quarter 2012, Q4 earnings Conference call I Hope you all had a chance to review our press releases issued this morning, a copy of the releases and presentation for today's discussion are available within the Investor section of the cargo Dotcom website, joining today's call are <unk>.
Bradley Joseph: Good morning and good afternoon, everyone. Welcome to Parago's first quarter 2024 rings conference call. I hope you all had a chance to review our press releases issued this morning. A copy of the releases and presentation for today's discussion are available in the investor section of the Parago.com website. Joining today's call are President and CEO Patrick Lockwood-Taylor and CFO Eduardo Bezerra.
Speaker Change: <unk> CEO, Patrick Lockwood, Taylor and CFO Eduardo Bezerra.
Bradley Joseph: 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 releases issued earlier today. A few items before we start.
Speaker Change: I would 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 releases issued earlier today.
Bradley Joseph: First, unless stated, all financial results discussed and presented are on a continuing operations basis. Continuing operations for the quarter include the HRA Rare Diseases business, which was classified as held for sale after the quarter end, and does not include any contributions from the divested RX business, which was accounted for as discontinued operations prior to its sale. Second, organic growth excludes acquisitions, divestitures, exited product lines, 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 statement.
Speaker Change: Items before we start burst unless stated all financial results discussed and presented are on a continuing operations basis.
Speaker Change: Continuing operations for the quarter include the HRA rare diseases business, which was classified as held for sale. After the quarter end and does not include any contribution from the divested Rx fitness, which was accounted for as discontinued operations prior to that set.
Speaker Change: Organic growth excludes acquisitions divestitures exited product lines and currency in both comparable periods.
Speaker Change: 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 financial statements and third Patrick's discussion will focus solely on non-GAAP results, except as otherwise noted see the appendix for additional details and reconciliation.
Bradley Joseph: And third, Patrick's discussion will focus solely on non-GAAP results, except as otherwise noted. See the appendix for additional details and reconciliations of all non-GAAP financial measures presented. And with that, I'm pleased to turn the call over to Patrick.
Speaker Change: All non-GAAP financial measures presented and with that I'm pleased to turn the call to Patrick.
Patrick Lockwood: Thank you, Brad. Good morning. Good afternoon, everyone.
Patrick Lockwood: Thank you Brad good morning, good afternoon, everyone.
Patrick Lockwood: I'd like to begin our call today by emphasizing the important strides we have made to further a One Perrigo strategy and deliver on our purpose to make lives better through trusted health and wellness solutions accessible to all. Let's start by recapping our quarter one results against the expectations that we discussed in our fourth quarter 2023 earnings. First, we planned that actions to augment and strengthen our infant formula business would have an impact on our first quarter EPS, and they did.
Patrick Lockwood: I'd like to begin our call today by emphasizing the important strides we have made to further our one paradise strategy.
Patrick Lockwood: And deliver on our purpose to make lives better through trusted health and wellness solutions accessible.
Patrick Lockwood: While infant formula actions drove an EPS headwind of $0.30 versus the prior year, first quarter EPS was approximately $0.06 ahead of our projection due to timing of infant formula shipments to customers. Actions taken in infant formula were impactful but necessary.
Patrick Lockwood: Lets start by recapping our quarter one results against the expectations that we discussed in our fourth quarter 2023 earnings call.
Patrick Lockwood: First we plan to action to augment and strengthen our infant formula business would have an impact on our first quarter EPS and they did.
Patrick Lockwood: While infant formula actions drove an EPS headwind of 30 cents versus the prior year first quarter EPS was approximately six cents ahead of our projection due to timing of infant formula shipments to customers.
Patrick Lockwood: Actions taken in infant formula where impactful but necessary.
Patrick Lockwood: The significant progress we have made set us up well to achieve our quality controlled reliable manufacturing environment.
Patrick Lockwood: The significant progress we have made sets us up well to achieve a quality-controlled, reliable manufacturing environment, though there is much more work to be done. I believe that the quality and compliance actions and investments we have taken will strengthen our competitive position in the industry over the long term. Also, as expected, skew prioritization actions in CSCA weighed on quarter one organic net sales and EPS growth. However, these actions had multiple benefits, including growth margin expansion of 50 basis points across the enterprise in quarter one, greater focus on more profitable areas of our portfolio, and provided additional production capacity as we build out our blended branded business. Next, as highlighted in our last earnings call, USOTC retail inventories were above average entering quarter one. As expected, retailer inventory to stocking led to lower shipments of product to customers compared to the prior year.
Patrick Lockwood: There is much more work to be done.
Patrick Lockwood: I believe that the quality and compliance actions and investments we have taken will strengthen our competitive position in the industry over the long term.
Patrick Lockwood: Also as expected SKU prioritization actions in CCA weighed on quarter, one organic net sales and EPS growth.
Patrick Lockwood: These actions had multiple benefits.
Patrick Lockwood: <unk> gross margin expansion of 50 basis points across the enterprise in quarter one.
Patrick Lockwood: Greater focus to more profitable areas of our portfolio.
Patrick Lockwood: And provides additional production capacity as we build out a blended branded business.
Patrick Lockwood: Next as highlighted in our last earnings call U S. OTC retail inventories were above average entering quarter one.
Patrick Lockwood: As expected retailer inventory destocking led to low shipments of product to customers compared to prior year encouragingly consumption across payer goes U S. OTC business remained healthy.
Patrick Lockwood: Encouragingly, consumption across Perigo's USOTC business remains healthy at plus 1.9% over the last 13 weeks ending March 24. Based on current consumption trends, we believe that retail inventory levels should normalize during Q2. And finally, CSEI continues to fire on all cylinders. Organic net sales in the quarter grew 7%, and the operating margin expanded 290 basis points versus last year to 19.7%. Collectively, the first quarter was a good start to the year as we delivered on our commitments, and we remain on track to achieve our goals in 2024.
Patrick Lockwood: One 9% over the last 13 weeks ending March 24.
Patrick Lockwood: Based on current consumption trends, we believe that retail inventory levels should normalize during quarter two.
Patrick Lockwood: Finally, <unk> continues to far on all cylinders organic net sales in the quarter grew 7% and operating margin expanded 290 basis points versus last year to 19, 7%.
Patrick Lockwood: Collectively the first quarter was a good start to the year as we delivered against our commitments and we remain on track to achieve our goals in 2024.
Patrick Lockwood: Okay.
Patrick Lockwood: Turning to our first quarter financial highlights.
Patrick Lockwood: Turning to our first quarter financial highlights. As just discussed, first quarter net sales were heavily impacted by infant formula in addition to skew prioritization actions to enhance margins as part of our supply chain reinvention program. These factors caused a decline in reported net sales of more than 8%.
Patrick Lockwood: As just discussed first quarter net sales were heavily impacted by infant Formula. In addition to SKU prioritization actions to enhance margins as part of our supply chain reinvention program.
Patrick Lockwood: These factors caused a decline in reported net sales of more than 8%.
Patrick Lockwood: Organic necks declined 7%, which comprised three major components, an impact of minus 4.3 percentage points from infant formula, an impact of minus 3.6 percentage points from SKU prioritization actions, and an organic net sales group of plus one point from the rest of our business, driven by strong performance in CSEI and the launch of Opel. Quarter one gross margin declined 90 basis points to 36.5%, which comprised an unfavorable 280 basis points impact from infant formula.
Patrick Lockwood: Organic net sales declined 7%, which comprised three major components and.
Patrick Lockwood: An impact of minus four three percentage points from infant formula and impact of minus three six percentage points from SKU prioritization actions.
Patrick Lockwood: Organic net sales growth of plus one point from the rest of our business driven by strong performance in <unk> and the launch of <unk>.
Patrick Lockwood: Quarter, one gross margin declined 90 basis points to 36, 5%, which comprise an unfavorable 280 basis points impact from infant formula.
Patrick Lockwood: A 50 basis points benefit from SKU prioritization actions and a 140 basis points benefit from the rest of the business, led by gross margin expansion in USOTC and oral care. As I said, first quarter EPS was ahead of projections, but it was down 16 cents from a year ago to 29 cents per share. Infant formula had an unfavorable $0.30 per share impact, and SKU prioritization actions had an additional $0.06 impact. These headwinds more than offset EPS growth of $0.20 per share from the rest of the business.
Patrick Lockwood: 50 basis points benefit from SKU prioritization actions.
Patrick Lockwood: 140 basis point benefit from the rest of the business led by gross margin expansion in the U S OTC and oral care.
Patrick Lockwood: As I said first quarter EPS was ahead of projection, but was down <unk> <unk> from a year ago to 29 cents per share.
Patrick Lockwood: Formula had an unfavorable 30 cents per share impact SKU prioritization actions had an additional six cents impact.
Patrick Lockwood: These headwinds more than offset EPS growth of <unk> <unk> per share from the rest of the business.
Patrick Lockwood: Digging a bit deeper into net sales, we delivered solid performance in women's health, which was led by the U S launch of <unk>.
Patrick Lockwood: Digging a bit deeper into net sales, we delivered solid performance in women's health, which was led by the US launch of Opil, and in skincare, which benefited from robust growth in our Compeed and Moderma brands. Compete achieved net sales growth of 56%, not incorporating distributed transitions that impacted sales in the prior year.
Patrick Lockwood: And in skincare, which benefited from robust growth in our compete and <unk> brands.
Patrick Lockwood: Compete achieved net sales growth of 56% not incorporating distributed transitions that impacted sales in the prior year driven by market share gains and the successful product line extension to compete spots.
Patrick Lockwood: Driven by market share gains and the successful product line extension of CompeteSpot, Moderma net sales grew 51% in the quarter, driven by Moderma Cold Sore, which added incremental sales to the brand and strong growth in e-commerce. Net sales across most global categories were impacted by skew prioritization actions in CSCA, which weighed most heavily on skincare, pain, and sleep aids, and digestive health. Inventory de-stocking at US retail customers also affected growth, as I just discussed.
Patrick Lockwood: <unk> net sales grew 51% in the quarter, driven by <unk>, which added incremental sales to the brand and strong growth in E Commerce.
Patrick Lockwood: Net sales across most global crash degrees was impacted by SKU prioritization actions and CSC.
Patrick Lockwood: Which weighed most heavily on skincare pain, and sleep AIDS and digestive health.
Patrick Lockwood: Inventory Destocking at U S retail customers also effective growth as I just discussed.
Patrick Lockwood: This impact was most notable in Coff Coal due to a lighter season than the prior year and industry-wide supply chain recovery. A quick note on the US allergy season; there has been a recent uptick in incidence levels and consumption over the past 13 weeks. A strong and prolonged allergy season could drive the need for customer replenishment even as U.S. retail inventories normalize. If a strong season does materialize, we're in a very good position to take advantage.
Patrick Lockwood: This impact was most notable in Costco due to our lightest season than prior year.
Patrick Lockwood: And industry wide supply chain recoveries.
Patrick Lockwood: A quick note on the U S. Allergy season, there has been a recent uptick in incidence levels and consumption over the past 13 weeks.
Patrick Lockwood: Strong and prolonged allergy season could drive the need for customer replenishment, even as U S retail inventories normalize.
Patrick Lockwood: If a strong season does materialize we are in a very good position to take advantage.
Patrick Lockwood: Okay.
Patrick Lockwood: Looking at our 2024 operational priorities, I'm pleased to say we remain well on track. First, we are making good progress augmenting and strengthening our infant formula business and are working to recover manufacturing volumes. We also executed the nationwide launch of Opel in the U.S. More details on both of those in a few moments.
Patrick Lockwood: Looking at our 'twenty 'twenty four operational priorities I'm pleased to say, we remain well on track.
Patrick Lockwood: First we are making good progress augmenting and strengthening our infant formula business and are working to recover manufacturing volumes. We also executed the nationwide launch of <unk> in the U S. More details on both of those in a few moments.
Patrick Lockwood: We also continue to benefit from accretive priorities. First, we are on track to deliver a total of $25 million in incremental HRA synergies as we complete integration activities. Second, our supply chain reinvention program drove gross savings of $12 million in the quarter and gross margin expansion of 50 basis points from skew prioritization actions. And third, Project Energize attained $17 million of cost savings in the quarter, and we remain on target to deliver $140 to $170 million in pre-tax annualized savings by 2026. Turning to infant formula?
Patrick Lockwood: We also continued to benefit from accretive priorities first we are on track to deliver a total of $25 million in incremental HRA synergies as we complete integration activities.
Patrick Lockwood: Second our supply chain reinvention program drove gross savings of $12 million in the quarter and gross margin expansion of 50 basis points from SKU prioritization actions and third project tenant joins attained $17 million of cost savings in the quarter and we remain on target to deliver.
Patrick Lockwood: $140 million to $170 million pre tax annualized savings by 2026.
Patrick Lockwood: Turning to infant Formula is the leading U S manufacturer of stool, Brian Formula Paraguay plays a critical role in the health and wellness of hundreds of thousands of babies every year.
Patrick Lockwood: As the leading U.S. manufacturer of Storr brand formula, Perrigo plays a critical role in the health and wellness of hundreds of thousands of babies every year. Over the past few months, we have made significant progress to augment and strengthen our infant formula manufacturing network. This included, in some instances, pausing production for comprehensive cleaning and infrastructure improvements, in addition to enhancements of quality protocols and manufacturing processes.
Patrick Lockwood: The past few months, we've made significant progress to augment and strengthen our infant formula manufacturing network is.
Patrick Lockwood: This included in some instances pausing production for comprehensive cleaning and infrastructure improvements. In addition to enhancements of quality protocols and manufacturing processes. At this point any planned large scale plant resets have been completed and we are progressing to the next phase of our quality and operational enhancements.
Patrick Lockwood: At this point, any planned large-scale plant resets have been completed, and we are progressing to the next phase of our quality and operational enhancement. This next phase includes further policy and procedural enhancements at the site level. In addition, we are making further investments in infrastructure and people as appropriate. Importantly, we do not expect this continuing body of work to result in extended shutdowns beyond normal maintenance activities.
Patrick Lockwood: <unk>.
Patrick Lockwood: This next phase includes further policy and procedural enhancements at the site level. In addition, we are making further investments in infrastructure and people as appropriate.
Patrick Lockwood: Importantly, we do not expect this continuing body of work to result in extended shutdowns beyond normal maintenance activities.
Patrick Lockwood: The recovery of manufacturing volumes is expected to continue to build throughout 2024 stemming from longer quality hold times and faster, shorter campaign style production runs. Sales volumes are expected to improve during the second half of this year, followed by market share recovery. All of this is in line with our original outlook. Stabilization of Infant Formula will remain a priority, and I'm pleased with the progress we have made.
Patrick Lockwood: The recovery of manufacturing volume is expected to continue to build throughout 2024 stemming from longer quality hold times and foster shorter campaign style production runs sales.
Patrick Lockwood: Sales volumes are expected to improve during the second half of this year followed by market share recovery. All of this is in line with our original outlook.
Patrick Lockwood: Stabilization of infant Formula will remain a journey and I am pleased with the progress we have made meaning quality compliance is core to <unk> business and culture, we will continue to invest in quality capacity and other enhancements as we bolster quality controlled reliable manufacturing across our network.
Patrick Lockwood: Maintaining quality compliance is core to Perrigo's business and culture. We will continue to invest in quality, capacity, and other enhancements as we bolster quality-controlled, reliable manufacturing across our network. With the launch of Opal, Perrigo has taken a historic step for women's health by creating an entirely new OTC category for oral contraceptives in the U.S. During the quarter, the OPIL team executed the most revolutionary and holistic product launch in the history of Perrigo.
Patrick Lockwood: <unk>.
Patrick Lockwood: With the launch of <unk> pill Paragon has taken a historic step for women's health.
Patrick Lockwood: By creating entirely new OTC category for oral contraceptives in the U S.
Patrick Lockwood: During the quarter the April team executed the most revolutionary and holistic product launch in the history of PARAGARD.
Patrick Lockwood: The launch was broad, and OPIL can now be found at more than 65,000 retail locations across the U.S., in addition to major e-commerce retailers. The response to this launch has been truly amazing, from customers to academics and now consumers. The Opel launch program encompassed a 360-degree approach to driver awareness.
Patrick Lockwood: Launch was broad and <unk> can now be found at more than 65000 retail locations across the U S. In addition to major e-commerce retailers.
Patrick Lockwood: The response to this launch has been truly amazing from customers to academics and now consumers.
Patrick Lockwood: The Oakville launch program encompassed a 360 degree approach to drive awareness.
Patrick Lockwood: This began with a coordinated pre-launch campaign that drove highly positive sentiment. This resulted in high awareness for OPIL even before our full media campaign ramps up over the coming weeks. Through activation plans, strategic partnerships, including a newly announced partnership with the WNBA, and the increasing support of public and private health care plans, OPAW is revolutionizing the landscape for women's health.
Patrick Lockwood: This began with a coordinated prelaunch campaign that drove highly positive sentiment.
Patrick Lockwood: This resulted in higher awareness the Oakville, even before a full media campaign ramps up over the coming weeks.
Patrick Lockwood: Through activation plans strategic partnerships, including our newly announced partnership with the WNBA and the increasing support of public and private health care plans.
Patrick Lockwood: <unk> is revolutionizing the landscape for women's health.
Patrick Lockwood: Early opioid consumption and conversion metrics are encouraging through the first few weeks of activation consumer time to conversion on <unk> Dot com has been impressive with limited touch points.
Patrick Lockwood: Early opioid consumption and conversion metrics are encouraging. Through the first few weeks of activation, consumer time to conversion on opil.com has been impressive with limited touch points. This timed conversion demonstrates that our team has the right strategy in place to guide consumers through their decision journey and promote repeat usage, which will ultimately determine the long-term success of open source. I'd like to congratulate our team, partners, and supporters who've played a vital role in the early success of OPIL.
Patrick Lockwood: It's time to conversion demonstrates that our team has the right strategy in place to guide consumers through their decision journey.
Patrick Lockwood: Moat repeat usage, which will ultimately determine the long term success of output.
Patrick Lockwood: I'd like to congratulate our team partners and supporters played a vital role in the early success of Alto <unk> is committed to advancing women's health and we will look to further innovate and provide accessible solutions that empower women to take charge of the oven self care journey.
Patrick Lockwood: Perrigo is committed to advancing women's health and will look to further innovate and provide accessible solutions that empower women to take charge of their own self-care journey. Now, I would like to share an update on our blueprint for One Perrigo. The work we have conducted to identify our winning portfolio is clarifying how we will leverage our core competences and strengths within our respective categories. Strategies within each category will depend on the long-term value creation potential and our right to win. These factors will shape various category management objectives, including top-line growth, profitability, and cash generation.
Patrick Lockwood: Now I would like to share an update on our blueprint for one PARAGARD.
Patrick Lockwood: We have conducted to identify a winning portfolio just clarifying how we will leverage our core competencies and strengths within our respective categories strategies within each category will depend on the long term value creation potential and a right to win.
Patrick Lockwood: These factors will shape, various category management objectives, including top line growth profitability and cash generation.
Patrick Lockwood: To fuel growth across our portfolio, we must continue to invest in innovation sourcing and new avenues of differentiation to deliver consumer preferred offerings.
Patrick Lockwood: To fuel growth across our portfolio, we must continue to invest in innovation, sourcing, and new avenues of differentiation to deliver consumer-preferred offerings. Work to bolster our innovation pipeline is underway, and will take time to fully develop. But we are approaching this objective from a position of strength, and we'll work with our retail partners to lead category growth in the self-care aisle. Our US store brand business remains a cornerstone of the Perigo portfolio, and it's the furnace that will fuel our blended branded business. Given the continuous evolution of the self-care landscape, we are conducting a thorough analysis regarding the position of this business, including network design, capacity utilization, and category penetration.
Patrick Lockwood: To bolster our innovation pipeline is underway and we will take time to fully develop.
Patrick Lockwood: But we are approaching this objective from a position of strength.
Patrick Lockwood: With our retail partners to lead category growth in the self care.
Patrick Lockwood: Our U S store brand business remains a cornerstone of the aggregate portfolio and its the furnace that will fuel our blended branded business.
Patrick Lockwood: Given the continuous evolution.
Patrick Lockwood: The self care landscape, we are conducting a thorough analysis regarding the position of this business, including network design capacity utilization and category penetration.
Patrick Lockwood: Our priorities through Fiscal 2025 include relentless execution in our core business to maximize free cash flow generation and de-lever. Key milestones include delivering margin expansion from Project Energize. Returning our infant formula business to a stable, profitable operation and driving favorable outcomes for key customers in our U.S. store brand business. In parallel, we will continue to implement OnePerrigo operating model enhancements to build a leaner, more efficient, and agile global organization to enable our strategy.
Patrick Lockwood: Our priorities through fiscal 2025 include relentless execution in our core business to maximize free cash flow generation and Delever team.
Patrick Lockwood: Key milestones are delivering margin expansion from project and the Joyce.
Patrick Lockwood: Turning to our infant formula business to stable profitable operations and driving favorable outcomes with key customers in our U S store brand business.
Patrick Lockwood: In parallel we will continue to implement one pair ago operating model enhancements to build a leaner more efficient and agile global organization to enable our strategy.
Patrick Lockwood: Our longer-term objective for 2026 and beyond is to have realised our blended branded strategy, a model that delivers sustainable value through creative innovation, and have made targeted investments in our highest potential growth opportunities in the most attractive categories and built consumer good capability. This will enable global branded growth with an eye towards accreted margins, cash flow, and returns. We look forward to further articulating this strategy at our Investor Day later this year. As you may already have seen, Sven Andersson, President of CSCI, will retire from Perrigo later this year.
Patrick Lockwood: Our longer term objective for 2026 and beyond sort of realized a blended branded strategy.
Patrick Lockwood: That delivers sustainable value accretive innovation.
Patrick Lockwood: We will have made targeted investments in our highest potential growth opportunities in the most attractive categories and built consume a good capabilities.
Patrick Lockwood: This will enable a global branded growth within OE towards accretive margins cash flow and returns.
Patrick Lockwood: We look forward to further articulating this strategy at our Investor Day later this year.
Spencer Anderson: As you may already seen spend Anderson president of CSC I will retire from pair ago later this year.
Patrick Lockwood: During his seven years leading this business, Svend has played a pivotal role in the success of CSCI by focusing the portfolio, concentrating on innovation and brand extension, all while making significant contributions to Perrigo's overall growth and development. On behalf of the Board of Directors, the management team, and everyone at Perrigo, we appreciate all that you have given Svend and all that you've done for Perrigo. Svend is handing over a business that has performed very well, and I am confident that Roberto will continue to drive success.
Spencer Anderson: During his seven years, leading this business spend has played a pivotal role in the success of CACI by focusing the portfolio concentrating on innovation and brand extensions.
Spencer Anderson: We're making significant contributions to pair those overall growth and development.
Speaker Change: On behalf of the board of Directors management team and everyone at pair ago. We appreciate all that you have given spend and all that you've done with PARAGARD.
Spend: Spend is handing over a business that has performed very well and I am confident that Roberto will continue to drive success.
Spend: Roberta Corey is joining PARAGARD later this month and will officially lead <unk> in August.
Patrick Lockwood: Roberto Cori is joining Perrigo later this month and will officially lead CSCI in August. He joins Perrigo from Chemview and has more than 20 years of experience in branded consumer products, including leadership of pan-European brands, accelerating digital and e-commerce capabilities, reducing portfolio complexity, and improving integrated planning accuracy. I'm confident in Roberto and his ability to further a One Perrigo strategy.
Spend: Joins pair ago from can view and has more than 20 years of experience in branded consumer products, including leadership, a pan European brands, accelerating digital and e-commerce capabilities, reducing portfolio complexity.
Spend: Proving integrated planning accuracy.
Speaker Change: I am confident and Roberto and his ability to further one pair ago strategy.
Spencer Anderson: In summary, we remain highly focused on our priorities, including our one <unk> strategy.
Patrick Lockwood: In summary, we remain highly focused on our priorities, including our One Perrigo strategy. We reported a good first quarter, and we'll continue executing against our 2024 operational priority. We are making great progress in strengthening and augmenting our infant formula network. OPA was off to a fast start, and we're on track to deliver our accretive initiative. We will do this while progressing our blueprint for One Perrigo to consumerize, simplify, and scale our business, all while focusing on cash, returns, and deleveraging. With that said, I will now turn the call over to our CFO, Eduardo, to cover the financials.
Spencer Anderson: We reported a good first quarter and we will continue executing against our 2024 operational priorities.
Spencer Anderson: We are making great progress in strengthening and augmenting our infant formula and network <unk> is off to a fast start and we're on track to deliver our accretive initiatives.
Spencer Anderson: We will do this while progressing our blueprint for one pair ago consumer is simplify and scale our business, while focusing on cash returns and deleveraging.
Spencer Anderson: With that I will now turn the call over to our CFO at water to cover the financials.
CFO: Thank you Patrick good morning, and good afternoon, everyone.
Eduardo Guarita Bezerra: Thank you, Patrick. Good morning and good afternoon, everyone.
Eduardo Guarita Bezerra: Looking at the first quarter financials, starting with the gap to non-gap sum, the company reported a gap net income of $4 million or $0.03 per diluted share. Adjusted net income was $40 million, and adjusted diluted earnings per share was $0.29 versus $0.45 in the prior year. Primary adjustments to our first quarter Nongyap NL were first, the removal of 113 million tax benefit, primarily driven by an $84 million benefit related to the planned intercompany sale of intellectual property.
CFO: Looking at the first quarter financials, starting with the GAAP to non-GAAP summary.
CFO: We reported GAAP net income of $4 million or three cents per diluted share.
Patrick Lockwood: Adjusted net income was $40 million and adjusted diluted earnings per share was 29%.
Patrick Lockwood: <unk> 45 in the prior.
Patrick Lockwood: Prior year.
Patrick Lockwood: Primary adjustments to our first quarter non-GAAP P&L War Sars, the removal of 113 million tax benefit primarily driven by an $84 million benefit related to the planet, an inter company sale of intellectual property.
Eduardo Guarita Bezerra: Two, amortization expenses of $59 million, and three, restructuring charges of $44 million, primarily related to our project energized and supply chain reinvention. Full details can be found in the Non-Gap Reconciliation Table attached to today's press release. From this point forward, all financial results discussed will be on an adjusted basis unless otherwise requested.
Patrick Lockwood: Amortization expenses of $59 million and three restructuring charges of $44 million, primarily related to our project in their jobs and supply chain reinvention programs full details can be found at the non-GAAP reconciliation table attached to todays press release.
Patrick Lockwood: From this point forward all financial results discussed will be on an adjusted basis unless otherwise noted.
Eduardo Guarita Bezerra: As highlighted, first quarter results were heavily impacted by the actions we're taking to strengthen and augment our infant formula business and SKU prioritization actions to enhance. This led to an operating income decline of 22%. Excluding the impact of infant formula, adjusted operating income from the rest of the business grew meetings per second. Let's dig into additional details.
Patrick Lockwood: As highlighted first quarter results were heavily impacted by the actions, we're taking to strengthen and augment our infant formula business SKU prioritization access to enhanced margins.
Patrick Lockwood: Led to an operating income decline of 22%.
Patrick Lockwood: Excluding the impact of infant formula adjusted operating income from the rest of the business grew mid teens percent.
Patrick Lockwood: Let's dig into additional states.
Eduardo Guarita Bezerra: Looking at our segment performance during the quarter, CSI continues to perform well, highlighted by plus 7% organic net sales growth. The strong top-line performance was driven by growth in compete and the absence of distributor transitions that unfavorably impacted the priority. CSEI gross margin was impacted by lower volumes, partially in the cost code category, due to supply constraints and lower seasonal incidence across Europe. However, operating margin expanded by 190 basis points to 19.7%, driven by expense reductions resulting from HRA synergies and ROI-focused advertising and promotion spend as part of project energy. I, too, would like to thank Sven for his tremendous efforts and leadership over the years while also welcoming Roberto to Perrigo.
Patrick Lockwood: Look at that our segment performance during the quarter.
Patrick Lockwood: <unk> continues to perform well highlighted by plus 7% organic net sales growth. The strong top line performance was driven by growth and compete and the absence of distributor transitions that unfavorably impacted the prior year.
Patrick Lockwood: <unk> gross margin was impacted by lower volumes, partially in the cough cold category due to supply constraints and lower seasonal incidents across Europe.
Patrick Lockwood: However, operating margin expanded 290 basis points to 19, 7% driven by expense reductions, resulting from HRA synergies and ROI focused advertising and promotion spend as part of project energize.
Speaker Change: I too would like to thank <unk> for his tremendous efforts and leadership over the years, while also welcoming Roberto to the Perrigo team.
Eduardo Guarita Bezerra: In CSEA, infant formula and SKU prioritization actions weighed on Q1 performance, with net sales down 15.7% and organic net sales down 14.6%. Organic net sales from the rest of the CSEA business declined 2.3% due primarily to U.S. retail inventory destocking across most categories. As Patrick noted, we believe retail inventories should normalize in Q3. First quarter CSEA gross margin declined 280 basis points versus last year, including minus 520 basis points driven by infant formula.
Speaker Change: Yes.
Speaker Change: Infant formula and SKU prioritization actions weighted on Q1 performance.
Eduardo Guarita Bezerra: The infant formula impact was partially offset by gross margin improvement of plus 10 basis points from SKU prioritization actions and plus 230 basis points expansion from the rest of the business, driven by favorable products in U.S., OTC, and Oracle Care. Continuing with margins, Perrigo's first quarter gross margin declined 90 basis points, including an impact of minus 280 basis points from infant formula.
Speaker Change: With net sales down 15, 7% and organic net sales down 14, 6% organic net sales from the rest of the <unk> business declined two 3% due primarily to U S retail inventory destocking across most categories.
Speaker Change: As Patrick noted, we believe retail inventories should normalize in Q2.
Speaker Change: First quarter gross margin declined to 180 basis points versus last year, including minus 520 basis points driven by infant formula.
Eduardo Guarita Bezerra: Infant Formula impact was partially offset by gross margin improvement of plus that 10 basis points from FTE prioritization actions and plus 230 basis points expansion from the rest of the business driven by favorable product mix in U S.
Speaker Change: TC NRO here.
Eduardo Guarita Bezerra: Continuing you made margins terrible first quarter gross margin declined 90 basis points, including an impact of minus 280 basis points from infant formula when excluding this impact from infant formula Virgo achieved a meaningful year over year gross margin expansion.
Eduardo Guarita Bezerra: When excluding this impact from infant formula, Perrigo achieved a meaningful year-over-year gross margin expansion of plus 190 basis points. All of this translated into operating margin expansion of plus 260 basis points, excluding the impact from infant formula. Two central takeaways here.
Eduardo Guarita Bezerra: <unk> plus 190 basis points.
Eduardo Guarita Bezerra: All of these translated into operating margin expansion of plus 260 basis points, excluding the impact from infant formula.
Eduardo Guarita Bezerra: <unk> central takeaways here first the importance of augmenting and strengthening infant formula cannot be overstated.
Eduardo Guarita Bezerra: First, the importance of augmenting and strengthening infant formula cannot be overstated. And second, merging across the rest of the business will continue to recover and expand. Now to EPS.
Eduardo Guarita Bezerra: And second margin across the rest of the business continue to recover and expense.
Eduardo Guarita Bezerra: Now to EPS.
Eduardo Guarita Bezerra: Infant formula, as expected, had an unfavorable $0.30 per share impact, and SKU prioritization actions had an additional $0.06 impact year over year. These headwinds more than offset a benefit of $0.20 per share from the rest of the business, which included a reduction of $0.02 from the impact of exited problems. Before turning to the balance sheet, a few comments on the proposed divestment of the HRA rare disease business, which has been a key component of our 2024 Deal Leverage.
Eduardo Guarita Bezerra: Formula as expected had unfavorable 30 cents per share impact and SCE operate. These <unk> actions had an additional six cents impact year over year. These headwinds more than offset the benefit of <unk> 20 per share from the rest of the business, which included a reduction of two cents.
Eduardo Guarita Bezerra: From the impact of exited products.
Eduardo Guarita Bezerra: Before turning to the balance sheet, a few comments on the proposed divestment of HRA rare disease business, which has been a key component of our 2020 for deleveraging plan.
Eduardo Guarita Bezerra: This proposed divestment further supports our focused consumer self-care portfolio, and the business will best flourish as part of stable growth. We plan to redeploy the upfront proceeds of €190 million later this year for debt repayment. Importantly, the financial impact of this proposed divestment was included in our regional 2024 outcome. I would like to thank the HRA Rare Diseases team for their dedication and focus as they continue improving the lives of patients with rare diseases.
Eduardo Guarita Bezerra: This proposed divestment further supports our focused consumer self care portfolio and the business will best flourish as part of a steady group.
Eduardo Guarita Bezerra: We plan to redeploy the upfront proceeds of 119 billion euros later this year for debt repayment and importantly, the financial impact of these proposed divestment was included in our regional 2024 outlook I would like to thank the HRA rare diseases.
Eduardo Guarita Bezerra: Team for their dedication and focus as they continue to improving the lives of patients with rare disease.
Eduardo Guarita Bezerra: Cash on the balance sheet at the end of the first quarter was $659 million.
Eduardo Guarita Bezerra: Cash on the balance sheet at the end of the first quarter was $659 million. First quarter operating cash outflow was $1 million due to infant formula and restructuring costs primarily related to Project ENERGY. During the quarter, we also invested $25 million in capital expenditures and returned $38 million to shareholders through dividends. Sources and uses of cash for 2024 remain largely intact from our initial outlook, apart from an upcoming cash tax payment related to the planned intercompany sale of intellectual property that will benefit the company over the long term.
Eduardo Guarita Bezerra: First quarter operating cash outflow was $1 million due.
Eduardo Guarita Bezerra: Due to infant formula and restructuring costs, primarily related to project energized during the quarter. We also invested $25 million in capital expenditures and returned $38 million to shareholders through dividends.
Eduardo Guarita Bezerra: Sources and uses of cash for 'twenty 'twenty four remain largely intact from our initial outlook apart from upcoming cash tax payments related to the planned intercompany sale of intellectual property that will benefit the company over the long term.
Eduardo Guarita Bezerra: We continue to anticipate operating cash flow conversions for the full year of 90 to 100%. Looking at the balance of the year, we expect Q2 to be our lowest operating cash flow quarter due to restructuring costs related to Project Energize. In addition, you may have seen that Perrigo recently settled a shareholder lawsuit for $97 million without any concession of liability or wrongdoing.
Eduardo Guarita Bezerra: We continue to anticipate operating cash flow conversion for the full year of 90% to 100%.
Eduardo Guarita Bezerra: Adjusted net income.
Eduardo Guarita Bezerra: Looking at the balance of the year, we expect Q2 to be our lowest operating cash flow quarter due to restructuring costs related to project energize.
Eduardo Guarita Bezerra: You may have seen that very go recently settled a shareholder lawsuit for $97 million without any concession of liability or wrongdoing, we expect to pay the settlement in the second quarter was in cash on hand and are seeking a full recovery from insurance providers. This year.
Bradley Joseph: We expect to pay the settlement in the second quarter using cash on hand and are seeking a full recovery from insurance providers. In total, we now estimate a cash balance for 2024 of between $500 and $550 million. Importantly, we continue to expect a net leverage ratio of approximately 3.8 to 4 times at year-end. Looking at EPS phasing for the year, our expected weighting between the first and second half remains unchanged. As discussed, timing of infant formula shipments realized in the first quarter, which were originally expected in the second quarter, is driving a change in our first-half phase.
Bradley Joseph: In total we now estimate and cash balance for 2024 of between 500 and $550 million.
Bradley Joseph: Importantly, we continue to expect our net leverage ratio of approximately three 8% to four times at year end.
Bradley Joseph: Looking at EPS phasing for the year are expected weighting between the first and second half remains unchanged as discussed timing of infant formula shipments realized in the first quarter.
Bradley Joseph: You would've originally expected in the second quarter are driving a change in our first half facing outside of these there are no updates to our previous phasing assumptions.
Bradley Joseph: Outside of these, there are no updates to our previous phasing assumptions. Furthermore, our 2024 outlook for Total Perrigo also remains unclear. Organic net sales growth of 1 to 3% is expected to be driven by new products, including appeal, pricing actions, and the absence of the HRA distributor transition impact. These drivers are expected to more than offset volume declines, primarily in infant formula, and a negative impact of one percentage point on organic growth from SKU prioritization.
Bradley Joseph: Our 2020 for outlook for total Perrigo also remains unchanged organic net sales growth of 1% to 3% is expected to be driven by new products, including the appeal.
Bradley Joseph: The actions and the absence of the HRA distributor transition impact.
Bradley Joseph: These drivers are expected to more than offset volume declines primarily in infant formula and the negative impact of one percentage point to organic growth from SKU prioritization actions.
Bradley Joseph: All-in net sales growth is expected to be flat compared to 2023, as organic growth is offset by divested and exited business and products. Excluding infant formula from both years, we continue to expect gross margin expansion in 2021. We are reaffirming our full year EPS range of 250 to 265, equating to meetings percent growth, excluding infant form. In closing, I would like to thank our Perrigo colleagues for their commitment to advancing our One Perrigo vision and for their continued focus on achieving our 2024 priority. Now, I will turn the call back to Brad. Brad?
Bradley Joseph: All in net sales growth, we expect it to be flat compared to 2023 as organic growth is offset by divested and exited business and products.
Brad: Excluding infant formula from both years, we continue to expect gross margin expansion in 2024.
Brad: We are reaffirming our full year EPS range of $2 50 to $2 65, equating to mid teens percentage growth excluding infant formula.
Bradley Joseph: Closing I would like to thank our <unk> colleagues for their commitment to advancing our one <unk> and for their continued focus on achieving our 2024 priorities now I will turn the call back to Brad.
Bradley Joseph: Brett.
Brad: Thanks, Eduardo operator can you. Please open the call for questions.
Operator: Thanks, Eduardo. Operator, can you please open the call for questions?
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your telephone keypad.
Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the 1 on your telephone keypad. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. Should you wish to cancel your request, please press star followed by 2. If you are using a speakerphone, please leave the handset before pressing any key. One moment, please, for your first question. Your first question comes from the line of Susan Anderson from Kenneco Genuity. Please go ahead.
Susan Kay Anderson: Hi, good morning. Thanks for taking my question. Thanks for all the details this morning.
Susan Kay Anderson: I would now like quest questions will be taken in the order you received should you wish to cancel your request. Please press star followed.
Susan Kay Anderson: If youre using a speakerphone. Please keep your handset before pressing Amy.
Susan Kay Anderson: One moment. Please for your first question.
Susan Kay Anderson: Your first question comes from the line of Susan Anderson from Canaccord Genuity. Please go ahead.
Susan Kay Anderson: Hi, Good morning, Thanks for taking my question and thanks for all the details this morning.
Susan Kay Anderson: I guess maybe just to start out in the infant formula business. So I think it was maybe a little bit better than expected, I think due to some early shipments. I'm curious, is that going to take away from the second quarter, or should we expect kind of still a sequential improvement there? And then I think you noted that the back half sales volumes will return. I guess I'm just curious, with the plants now back up and running, why wouldn't we just see kind of a sequential recovery in those volumes? And then also just on the cost for the infant formula business, is that still in line with your original expectations? Thanks.
Susan Kay Anderson: I guess, maybe just to start out on the infant formula business. So I think it was maybe a little bit better than expected I think due to some early shipments.
Susan Kay Anderson: Curious is that going to take away then from second quarter or should we expect kind of similar sequential improvement there and then I think you noted that the back half sale sales volumes will return I guess I'm just curious with the plants.
Susan Kay Anderson: Now back up and running.
Susan Kay Anderson: Why when you see kind of the sequential recovery in those volumes and then also just on the cost or the infant formula business is that still in line with your original expectations.
Susan Kay Anderson: And so then Eduardo thank you for question so.
Eduardo Guarita Bezerra: Hi Susan, Eduardo here. Thank you for your question. So I'm gonna answer your first piece, and then I'm sure Patrick is going to cover more of the other side, right. So I guess the first thing is, you know, as we planned for the quality release of our products, some of those products we were expecting to take place in the second quarter. So as we continue to make progress on our quality processes, we're able to release those products in the first quarter and get them to customers that so much need them. So that's just a tiny issue. It doesn't change our overall production plans between key dates.
Eduardo Guarita Bezerra: So you are first the sedan absorb metrics I'm going to cover more of the other side right. So I guess the first thing.
Eduardo Guarita Bezerra: As we planned on the quality releases of our products. Some of those products, we were expecting to take place in the second quarter. So as we continue to make progress on our quality processes, we were able to release those products in the first quarter and get to customers. That's so much needed. So that's just the timing issue.
Eduardo Guarita Bezerra: Does it change our overall production plans between Q1 and Q2.
Eduardo Guarita Bezerra: Hi, Susan this is Pat Thank you for your question.
Patrick Lockwood: Hi Susan, this is Patrick. Thank you for your question.
Patrick Lockwood: I guess in a nutshell, the interventions to get to quality compliance and reliability have gone well across all three pumps.
Patrick Lockwood: I guess, in a nutshell, the interventions to get to quality compliance and reliability have gone well across all three plants. Probably as importantly, the startup and the ramp-up volumes and the throughputs are slightly ahead of expectation, but we are in the early stages of executing, frankly, a new set of GMPs. It would be premature to take up financial outlook given we're still really in learning and reacting mode, but so far, very good.
Patrick Lockwood: Probably as importantly, the startups and the ramp up volumes and the throughput.
Patrick Lockwood: To slightly ahead of expectation, but we are in the early stages of executing frankly, a new set of GMP.
Patrick Lockwood: Would be premature to take up financial outlook, given we're still really in learning and reacting mode.
Patrick Lockwood: But so far very good.
Susan Kay Anderson: Okay, great. That's helpful. And then, on the destocking in the US, then it sounds like you said across all categories, but really, I guess, mainly in cold and cough. It sounds like it's complete now. Is that correct? And then I'm just curious how inventories ended, and particularly in cold and cough, if they're kind of in good shape as we, you know, look into the fall season.
Speaker Change: Okay, Great that's helpful.
Susan Kay Anderson: And then so I guess on the Destocking in the U S. Then.
Susan Kay Anderson: It sounds like you said across all categories.
Susan Kay Anderson: Really I guess, mainly in holding costs.
Susan Kay Anderson: And it sounds like it's complete now is that correct and then I'm just curious how inventory ended and particularly in clothing caucus youre kind of in good shape.
Susan Kay Anderson: In lithium.
Susan Kay Anderson: The fall season.
Eduardo Guarita Bezerra: Yeah, Susan, so the way we're looking at it, and that's what we shared about the CSEA of the business, right, so we believe that the majority of that 2.3% reduction is really tied to that, as we talked about in the beginning of the call. You know, we've seen that across multiple categories, but most importantly, as you're aware, with a very light, you know, coffin-called season, that's something as well that impacts us.
Speaker Change: Yeah, Susan so the way we're looking at.
Eduardo Guarita Bezerra: That's what we shared.
Eduardo Guarita Bezerra: About <unk> of.
Eduardo Guarita Bezerra: Of the business right. So we believe that the majority of that two 3% reduction in the fees. We cited that the destocking right as we've talked in the beginning of the call.
Eduardo Guarita Bezerra: We're seeing that.
Eduardo Guarita Bezerra: Across multiple categories, but most importantly, as youre aware.
Eduardo Guarita Bezerra: The very light.
Eduardo Guarita Bezerra: Cough and cold season, that's something as well that impacted that.
Susan: Yes, okay.
Patrick Lockwood: Yeah, okay, great. To throw on top, which I think you may have heard from the team here, consumption is up nearly two points. Yeah, while the sell into the retailers from us, so shipments were down. So you have essentially kind of a two and a half, three swing between those two. Yeah. And that's kind of a good way to think about it.
Eduardo Guarita Bezerra: Yes.
Patrick Lockwood: On top which I think you may have heard from the team here is.
Patrick Lockwood: The consumption.
Patrick Lockwood: Is up nearly two points.
Patrick Lockwood: While the cell into the retailers from us so shipments were down.
Patrick Lockwood: So you have essentially kind of a $2 five III swing between those tails.
Patrick Lockwood: That kind of a good way to think about.
Patrick Lockwood: Okay, great and Thats really because of a late start to the season, how the retailer destocking.
Susan Kay Anderson: Okay, great. And that's just really because the late start to the season, so the retailers were already stocked, and it just wasn't strong enough to have to restock. Exactly.
Susan Kay Anderson: Looks like it's strong.
Susan Kay Anderson: Mr Bean stock.
Susan Kay Anderson: Exactly exactly.
Susan Kay Anderson: And then one more just on the international business. I was curious what drove the growth in skincare and personal hygiene. It looks like that was the strongest performance, and then upper respiratory was weaker. Was that also due to similar issues internationally with the weaker flu season? Yeah, so, you know, the skincare you saw, it was very strong on compete, right? So, and this is, you know, aside from the lapping of the distribution transition, we had very strong growth in the first quarter, which is, is very good also with the extension of compete spots, right, that increases the overall category that we're playing on.
Speaker Change: Okay great.
Susan Kay Anderson: And then one more just on the international business I was curious what drove the growth in the skin <unk> personal hygiene. It looks like that was the strongest performance and then upper.
Susan Kay Anderson: Upper respiratory was weaker was that also due to similar issues internationally with the weaker yes.
Susan Kay Anderson: Skin care you saw.
Susan Kay Anderson: So it was very strong copied right. So.
Susan Kay Anderson: And do you see it.
Susan Kay Anderson: Aside from the lapping of the distribution transition that we had a very strong growth in the first quarter, which is alright.
Susan Kay Anderson: Very good also with the expansion.
Susan Kay Anderson: Compete.
Speaker Change: <unk> right.
Susan Kay Anderson: Increase the overall I believe that we are playing on but the cough and cold the same.
Susan Kay Anderson: But on the cough and cold, the same, you know, that we saw in the US with a lighter season happening in Europe as well. So that's why you saw, you know, an upper respiratory tract infection, including cough and cold, let's say a reduction in volume. Okay, great. And then if I just add one more to the VMS category, it looks like it was weak, both in the Americas and international. I don't know if it was the same drivers there between the two regions. But then also, are you seeing consumers move away from VMS at all after, you know, a pretty strong focus on their health and wellness during COVID and post-COVID?
Susan Kay Anderson: But as we saw in the U S with a lighter season happened in Europe as well. So that's why you saw.
Susan Kay Anderson: Number of respiratory including coffee cold, let's say a reduction in volume there.
Susan Kay Anderson: Okay, Great and then thanks to add one more on the Vms category. It looks like it was weak pulp and Americas International I don't know if it was the same drivers there.
Susan Kay Anderson: Between the two regions. But then also are you seeing consumers move away from BMS at all after.
Susan Kay Anderson: Pretty strong focus on their health and wellness.
Susan Kay Anderson: During Covid and post Covid.
Susan Kay Anderson: Yes, just looking at the bigger picture Susan as we go back and look good.
Eduardo Guarita Bezerra: Yeah, just looking at the bigger picture, Susan, as we go back and look at, you know, SARS and other major events that disrupted VMS, you saw an immediate, typically 10 to 20%, increase in consumption during SARS or indeed during COVID. You then saw a slight regression of the category for one to two years post that, but stabilizing at a level that was still five to 10% higher than pre the pandemic, and that's been true for about the last three events over the last sort of 20-25 years.
Eduardo Guarita Bezerra: Some of the.
Eduardo Guarita Bezerra: Major events that disrupted Vms you saw an immediate typically 10% to 20% increase in consumption during the Sars or indeed during COVID-19.
Eduardo Guarita Bezerra: And saw a slight regression of the category for one to two years post that stabilizing at a level that was still 5% to 10%.
Eduardo Guarita Bezerra: As in pre the pandemic.
Eduardo Guarita Bezerra: And that's been true for about the last three events over the last sort of 2024 ideas.
Eduardo Guarita Bezerra: So I think what you're still seeing is some normalization. [inaudible] But we continue to see strong consumption and outlook for those businesses. There was also some very near-term sort of phasing promotional activity that sort of impacted us as well, but I would say underlying strong consumption trends, these categories are markedly bigger than they were five years ago, but it just impacted some phasing activity as well.
Eduardo Guarita Bezerra: I think what youre still seeing assume some normalization.
Eduardo Guarita Bezerra: But we continue to see.
Eduardo Guarita Bezerra: Uh huh.
Eduardo Guarita Bezerra: Strong consumption that outlook on those.
Eduardo Guarita Bezerra: Businesses. There was also some very near term sort of phasing promotional activity that sort of impacted us as well, but I would say underlying strong consumption trends. These categories are markedly bigger than they were five years ago, but just the impact of some phasing activity as well.
Speaker Change: Got it okay great.
Susan Kay Anderson: Got it. Okay, great. If I could maybe just squeeze in one more question. I'm curious what you're seeing on the trade down to private label in the US and then, I know, international. It's a little bit different, but are you seeing anything at all internationally that's impacting the brand and business? Thanks.
Eduardo Guarita Bezerra: And if I could maybe just squeeze in one more im curious what youre seeing on the trade down to private label in the U S and then.
Susan Kay Anderson: I know international it's a little bit different but are you seeing anything at all internationally.
Susan Kay Anderson: Thanks.
Patrick Lockwood: Yes, certainly more focused on the US, which is 90 plus percent of our business. In the last 15 weeks or so, we've seen about a 50 basis point gain from the store brand. A store brand volume share gain is actually about 150 basis points. So, we are definitely seeing a better understanding of what these propositions are, what the molecule is that is, you know, bioequivalent, but a tremendously better value. So, as I think consumers continue to feel the sort of pinch in the U.S., we are seeing a good increase in store brand business, which is, of course, very good for our business.
Speaker Change: Yes, certainly.
Patrick Lockwood: More focus on the U S, which is 90 plus percent of our business.
Patrick Lockwood: And the last one.
Patrick Lockwood: So we've seen about a 50 basis point gain from store brand.
Patrick Lockwood: Our store brand volume share gain is actually about 150 basis points. So.
Patrick Lockwood: We are definitely seeing.
Patrick Lockwood: Better understanding of what these propositions, though what the molecule is that.
Patrick Lockwood: Bio equivalence, but a tremendously better value.
Patrick Lockwood: So I think consumers continue to fill the sort of pinch in the U S. We are seeing.
Patrick Lockwood: Good increase in store brand business, which is of course very good for our business.
Speaker Change: Great sounds good. Thanks, so much good luck the rest of the year.
Susan Kay Anderson: Great. Okay. Sounds good. Thanks so much. Good luck the rest of the year. Thank you.
Susan Kay Anderson: Great. Okay. Sounds good. Thanks so much. Good luck the rest of the year. Thank you.
Speaker Change: Thank you.
Susan Kay Anderson: Okay.
Speaker Change: Next question please.
Susan Kay Anderson: Yes. Your next question comes from the line of Cowen.
Operator: Yes, hello. Your next question comes from the line of Korinne Wolfmeyer from Piper Sendler. Please go ahead.
Korinne N. Wolfmeyer: From Piper Sandler. Please go ahead.
Korinne N. Wolfmeyer: Hi, Good morning. This is Sarah on for Caribbean Hotel with the expanded coverage can you guys touch on how does that shape. Your view on total revenue potential this year and then over the longer term.
Korinne N. Wolfmeyer: And then.
Korinne N. Wolfmeyer: What are you currently baking into guidance from Holdco and if there is potential that this could be dilutive to EPS now.
Korinne N. Wolfmeyer: Hi, Thank you for that.
Korinne N. Wolfmeyer: Hi, thank you for that. I'll give some high level on the insurance coverage that you've heard about and you're right to pick up on, and then Eduardo will give more on the sort of near-term financial impacts. This was very good news from CVS Caremark, obviously by far the largest insurance coverage there. We are still modeling through, that's only recently announced, we're still modeling through the impact of that, how quickly consumers will convert, the degree of awareness of that, etc. It's a fairly sophisticated piece of modeling, and it's not complete.
Korinne N. Wolfmeyer: Give some high level on the insurance coverage that you've heard about and you're right to pick up on and then it was more on the sort of near term financial impacts.
Korinne N. Wolfmeyer: This was very good news from Cvs Caremark, obviously by far the largest.
Korinne N. Wolfmeyer: The insurance coverage that we.
Korinne N. Wolfmeyer: We are still modeling through this early recently announced we're still modeling through the impact of that how quickly consumers will convert the degree of awareness of that et cetera. This is very sophisticated piece of modeling and thats not complete so I cant tell you what the revenue impact will be but undoubtedly will be <unk>.
Patrick Lockwood: So I can't tell you what the revenue impact will be, but it undoubtedly will be significantly increasing. We are also seeing states starting to provide coverage as well. You may have heard of Wisconsin.
Patrick Lockwood: <unk> <unk> accretive.
Patrick Lockwood: We are also seeing states starting to provide coverage as well you would've heard of Wisconsin, we expect others to follow.
Patrick Lockwood: We expect others to follow both the state and CVS's move, which we were very, very encouraged by, really just improving accessibility and value for this category. I think in terms of the more near-term effects. Yeah, so I guess what's important to mention is, you know, we're gonna see OPO as margin accretive in 2024, but we continue with because all the investments that we're putting behind, not only the brand, but also as we think about how, you know, women's health, the whole category will evolve.
Patrick Lockwood: Both the state and Cvs, which we were very very encouraged by really just improving accessibility embedding for this category.
Patrick Lockwood: I think in terms of the more near term effects.
Patrick Lockwood: So I guess are important to mention these.
Patrick Lockwood: We're going to see <unk>.
Patrick Lockwood: Is margin accretive in 2024, but do we continue with because all the investments that we're putting behind it not only the brands, but also as you think about how.
Patrick Lockwood: Women's health the whole category will evolve we want to be able to be the carrier of the brand.
Patrick Lockwood: We want OPO to be the carrier of the brand, you know, for the future. So we want to make sure that the awareness is pretty strong. And so we continue with our plans to see, on an EPS basis, the effect of OPO over the next 12 to 18 months, okay?
Patrick Lockwood: For the future. So we want to make sure that the warrant is pretty strong and so we continue with our plans to see on an EPS be diluting the effect that will appeal over the next 12 to.
Patrick Lockwood: 18 months okay.
Speaker Change: Very helpful. Thank you.
Speaker Change: Thanks, Sarah next question please.
Eduardo Guarita Bezerra: Thanks, Sarah. Next question, please.
Operator: Thank you. And your next question comes from the line of Chris Schott from JP Morgan. Please go ahead.
Patrick Lockwood: Thank you and our next question comes from the line of Chris Scott from Jpmorgan. Please go ahead.
Christopher Thomas Schott: All right, great. Thanks so much for the questions.
Christopher Thomas Schott: Great. Thanks, so much for the questions can I just come back to the infant nutritional business I guess now that we're just we're another few months into the process.
Christopher Thomas Schott: Can I just come back to the infant nutritional business? I guess now that we're just another few months into the process... What's your level of confidence that the remediations have solved issues with these segments? I'm just trying to get my arms around, with these plant shutdowns, the most challenging piece of the process, or is the work going forward to make sure you can kind of stay in compliance, representing the biggest hurdle and showing a sense of just like the level of confidence of where we are?
Christopher Thomas Schott: What's your level of confidence that the remediation.
Christopher Thomas Schott: Solves issues with these segments I was wondering my hands around with these plant shutdowns. The most challenging piece of the process or is it the work going forward to make sure you can kind of stay in compliance.
Christopher Thomas Schott: The biggest hurdle and shrink a sense of just like level of confidence of where we are and then maybe just as part of that.
Christopher Thomas Schott: So if you could comment on just what portion of the 65 or so of impact from the remediation. You think you can be efficient to regain as we look out to 2025 I just have one follow up after that.
Christopher Thomas Schott: And then maybe there's just part of that. Comment on just what portion of the 65 cents or so of impact from the remediation you think you're gonna be efficient in gaining as we look out to 2025. And just have one follow-up after that.
Speaker Change: Yes. Thank you Chris good to hear from you again I'll take the first part of it will be available in the outlook.
Patrick Lockwood: Yeah, thank you, Chris. Good to hear from you again.
Patrick Lockwood: I'll take the first part of Eduardo's comment on the outlook. Each of those three blocks that you went through and characterized very well are equally critical, but they're sequential. You can't do the second without the first, and the third without the second, obviously.
Speaker Change: Each of those three blocks that you went through and characterized very well.
Patrick Lockwood: Critical but the sequential going through the second one first.
Patrick Lockwood: The big intervention in terms of root cause analysis, corrective and preventative actions, the translation of that into new GMPs, protocols, staffing levels, etc., is largely done, okay, across the three sites. As we did in Wisconsin, we were able to accelerate the application of that know-how to the other two facilities and all facilities back into production mode. Okay, so, and as I suggested in my commentary, really putting startup times and throughputs at or slightly ahead of our expectations.
Patrick Lockwood: Obviously.
Patrick Lockwood: The big intervention in terms of root cause analysis corrective and preventative actions the translation of that into new GMP protocol staffing levels et cetera is largely done okay across the three sites.
Patrick Lockwood: Executed in Wisconsin, we were able to accelerate the application of that knowhow into the other two facilities in all facilities back in production mode. Okay.
Patrick Lockwood: And as I suggested in my commentary.
Patrick Lockwood: Really putting startup times and throughput.
Patrick Lockwood: We're slightly ahead of our expectations. So we're very encouraged by that.
Patrick Lockwood: To the point you make.
Patrick Lockwood: So we're very encouraged by that. To the point you make, though... Slip-back is a permanent watch, and we have to make sure that our environmental cleanliness, monitoring, and GMPs keep us quality compliant at all times, so we're not getting any positive hits and, therefore, having to stop production. We're not, and we're not. So that is extremely encouraging, okay? But we're having to continue to learn what needs to be true such that those factors stay true, and we maximize production and not see the very disruptive interruption to production that we did historically. So far, so good. Very early, but could not be happier in terms of where we are. It is too soon to say we have a 100% reliable model, but we are inching closer to that. Thank you.
Patrick Lockwood: Slipped back is a permanent watch and we have to make sure that our environmental cleanliness monitoring.
Patrick Lockwood: <unk> keep us at all towards quality compliance. So we're not getting any positive hits and therefore, having to stop production.
Patrick Lockwood: With notes and we're not so that is extremely encouraging okay, but we're having to continue to learn what needs to be true such that those those factors stay true and we maximize production and not seeing the very disruptive interruptions to production that we did historically so far so good very early.
Patrick Lockwood: Hi.
Patrick Lockwood: Could not be happier in terms of where we are it is too soon to say, we have a 100% reliable model, but we are inching closer to that great. So your question right. So remember we're talking about we our expectation to get.
Eduardo Guarita Bezerra: And Chris, to your question, right? So remember, we're talking about our expectation to get, you know, the infant formula business should contribute about $114 million on an annual basis, right? So that's about $35 million a quarter. And so everything that we're working on right now is to make sure that in four quarters, we can achieve those levels. And that's why it's so critical. We may not see that fully, you know, between Q2 and Q3, but we expect by Q4 to be at that run rate that will give us the confidence, you know, with all the actions that we're taking to make sure that from a production standpoint, from a quality standpoint, reliability, market share, we can really consistently deliver against that $140 million OI objective, okay?
Eduardo Guarita Bezerra: The infant formula business on an annual basis should contribute about $114 million right. So thats about the $35 million of barter and so everything that we're working right now is to make sure that this fourth quarter, we can achieve those levels and thats why its so critical we may not see that fully.
Eduardo Guarita Bezerra: <unk>.
Eduardo Guarita Bezerra: Between Q2, and Q3, but we expect by Q4 to be at that run rate, but that will give us the confidence.
Eduardo Guarita Bezerra: With all of the actions that we're taking to make sure that from a production from a quality standpoint reliability market share, we can really consistently deliver against that the unexpected unexplored $10 million of why objectives. Okay.
Christopher Thomas Schott: Great, thank you. And just a bigger picture question. I guess you think about Perrigo going forward, thinking about kind of your 2026 and beyond plans. Do you feel like you have the right portfolio in place at this point? Or can we think about further refinements or divestitures as you look to focus the company on kind of some of the more ambitious growth objectives over time? Yes.
Speaker Change: Great. Thank you.
Speaker Change: And then just a bigger picture question I guess do you think about perrigo going forward and thinking about kind of your 2026 and beyond plans do you feel like you have the right portfolio in place at this point or can we think about further refinements or divestitures as you look at look to focus the company on kind of some of the more of these growth objectives over time.
Christopher Thomas Schott: Yes.
Patrick Lockwood: We will narrow our portfolio. We're much clearer on which categories and brands offer the most attractive growth, the most scalable growth. We can execute the same thing, the same innovation through the same production in more parts of the world.
Christopher Thomas Schott: We will narrow our portfolio with much clear on which categories and brands.
Patrick Lockwood: Offer the most attractive gross of a scalable growth we can execute the same thing that same innovation through the same production.
Patrick Lockwood: More parts of the world. So we are completing that analysis now I am sure going forward you will see a more focused portfolio prepare go.
Patrick Lockwood: So we are completing that analysis now. I'm sure going forward, you will see a more focused portfolio for Perrigo and faster growth rates that are at a higher OI. And we will share that thinking at the investor day in late fall.
Patrick Lockwood: First the growth rates that are at a higher ROI and we will share that.
Patrick Lockwood: That thinking at the Investor day.
Speaker Change: Okay. Thanks, so much.
Speaker Change: Thanks, Chris.
Patrick Lockwood: Thank you and your next question comes from the line of Danielle <unk>.
Operator: Thank you. And your next, last question comes from the line of Daniel Biolsi from H.I. Please go ahead. Hi.
Daniel William Biolsi: From <unk>. Please go ahead.
Daniel William Biolsi: Hi, thanks for taking the question. So could you spend some time on the inventory destocking outside of cough and cold, like in sleep aid, healthy lifestyle, oral care? Is that permanent, just timing, or loss of shelf space?
Daniel William Biolsi: Hi, Thanks for taking the question. So could you spend some time on the inventory destocking outside of cough cold I can sleep aid healthy lifestyle oral care is that permanent just timing or loss of shelf space.
Daniel William Biolsi: Well at this stage, we believe that.
Eduardo Guarita Bezerra: Well, at this stage, we believe that, you know, there is an overall focus on retailers, you know, the stocking, the cost of that, and also trying to understand what the focus of consumers is, right? So as we're seeing more and more consumers trading down, you know, now, you know, software is playing a key role. I think retailers at this stage are being very careful, and given a year that they saw a lot of price increases in 2023 and volume impact, they're trying to be more careful about how they're going to manage their working capital, as well as their inventories. And so, I think that's across categories; it's not specific to Boston Gold.
Daniel William Biolsi: No.
Eduardo Guarita Bezerra: There is an overall.
Eduardo Guarita Bezerra: Retailer.
Speaker Change: Thank you Scott.
Eduardo Guarita Bezerra: Cost of.
Eduardo Guarita Bezerra: That then also.
Speaker Change: All right.
Eduardo Guarita Bezerra: Consumers right Bill.
Eduardo Guarita Bezerra: We're seeing more and more.
Eduardo Guarita Bezerra: <unk> down.
Eduardo Guarita Bezerra: Hello.
Eduardo Guarita Bezerra: Well I think retailers at this stage.
Eduardo Guarita Bezerra: Right.
Eduardo Guarita Bezerra: And given a year that they saw.
Eduardo Guarita Bezerra: 2023, and volume feedback they are trying to be more careful about how theyre going to manage their working capital.
Eduardo Guarita Bezerra: And so I think thats that.
Speaker Change: I agree with you.
Eduardo Guarita Bezerra: Well I think coal and so we cannot be watching that closely but if there is an area where.
Eduardo Guarita Bezerra: And so, we're going to be watching that closely. But if there is an area where, you know, when consumers start to make those changes, you know, that we believe Perrigo has an advantage, it's really the store brand. And we're seeing that coming along pretty well as we gain some share in the quarter. And so, as consumers continue that direction, we believe store brands will continue to be, you know, a very affordable opportunity for consumers to continue to take care of themselves. And so, we are very well positioned in those categories. But I think your question.
Eduardo Guarita Bezerra: Consumers start to make those changes.
Eduardo Guarita Bezerra: We believe <unk> has an advantage is really store brands and we're seeing that coming along pretty well.
Eduardo Guarita Bezerra: We've gained some share in the quarter.
Eduardo Guarita Bezerra: As consumers continue that direction, we believe store brands will continue to be.
Eduardo Guarita Bezerra: Area of Florida.
Eduardo Guarita Bezerra: Opportunity for consumers to continue to take care of their cells and so we are very well positioned in those categories, but I think your question is.
Patrick Lockwood: But I think your question is, your hypothesis is right. You're seeing more categories in self-care with a fixed amount of shelf space and an increasing focus by retailers on cash, return on working capital. And so I think you have seen some destocking. I think there is a natural flaw to that for obvious reasons. Otherwise, they can't service their customers. We believe we're approaching that.
Patrick Lockwood: Maybe a hypothesis is right you're seeing more categories and self care with a fixed amount of shelf space and an increasing focus by retailers on cash.
Patrick Lockwood: Return on working capital and so I think you have seen some destocking I think there is a natural floor to that for obvious reasons, otherwise they call a service to their customers.
Patrick Lockwood: We believe we are approaching that.
Patrick Lockwood: And then if I could ask one more what should we expect for the gross margin impact.
Daniel William Biolsi: And then, if I could ask one more question, what should we expect for the gross margin impact from infant formula in Q2? If Q1 was a minus 520 basis point impact and we got earlier shipments, what should we expect in Q2 when we're gonna lose those shipments?
Daniel William Biolsi: Some formula in Q2, if Q1 was a minus 20 basis point impact.
Daniel William Biolsi: And we got earlier shipments what should we expect in Q2, and we're going to lose those shipments.
Eduardo Guarita Bezerra: Well, so, we expect in Q2, you know, margins to be in a much better situation, you know. Remember, we had the two key effects there, right? So, we had lower shipments, but we also had, you know, variances that impacted us because, you know, we had some stoppages in our manufacturing operations. We did not expect those one-time impacts to take place in Q2, and so our margins should rebound significantly, you know, versus, you know, Q1.
Speaker Change: Well, so we expect in Q2.
Eduardo Guarita Bezerra: The margins to be in.
Eduardo Guarita Bezerra: Much better.
Eduardo Guarita Bezerra: Yes.
Eduardo Guarita Bezerra: Remember we had the two key effects there right. So we had first is lower shipments, but also we had.
Eduardo Guarita Bezerra: Variances that impacted because we had some stoppages in our manufacturing operations, we do not expect that those one time impacts take place in Q2, and so our margin should rebound significantly.
Eduardo Guarita Bezerra: Versus Q1.
Eduardo Guarita Bezerra: As compared to as we look into that into the second versus last year.
Eduardo Guarita Bezerra: As compared to, as we look into that second versus last year, you know, volumes are not going to be at the same level as last year, but we should see an improvement on margins, you know, on a gross profit level as compared to what it would have been last year.
Eduardo Guarita Bezerra: Williams are not going to be at the same level of last year, but we should see an improvement on margins on a gross profit.
Eduardo Guarita Bezerra: Level as compared to what would be the last year.
Eduardo Guarita Bezerra: I think the.
Eduardo Guarita Bezerra: I think the quarter one gross margin decline overall for the business was 90, and that included a 280 basis point impact from infant formula. That was the... Calculations for Q1. But that's what I'm saying, QT, you know.
Eduardo Guarita Bezerra: The quarter, one gross margin decline overall for the business is 90 and that included a 280 basis point impact from input formula that was the.
Eduardo Guarita Bezerra: The calculation for Q1.
Eduardo Guarita Bezerra: But that's what I'm saying. Q2, you know, we did not expect that magnitude. In fact, it should be an improvement as compared to what we saw last year.
Eduardo Guarita Bezerra: But that's what I'm, saying.
Eduardo Guarita Bezerra: With an opex.
Eduardo Guarita Bezerra: Jim.
Eduardo Guarita Bezerra: <unk> improvement as compared to us.
Eduardo Guarita Bezerra: Yeah.
Eduardo Guarita Bezerra: Okay.
Daniel William Biolsi: Great. Thank you, Daniel.
Speaker Change: Great. Thank.
Speaker Change: Thank you Danielle.
Speaker Change: Thank you.
Patrick Lockwood: Thank you. That concludes our Q&A. I will now hand the call back to Mr. Patrick Lockwood-Taylor for his closing remarks.
Daniel William Biolsi: <unk> Q&A I will now hand, the call back to Mr. Patrick.
Patrick Lockwood: Miller for closing remarks.
Patrick Lockwood: Thank you very much so versus what we outlooks in February what.
Patrick Lockwood: Thank you very much. Versus what we projected in February, what we said is what happened, what we said we were going to do is what we did, and where we thought it would net out is where it netted out. So we feel we're on track to hit our 24 commitment. As we've talked several times today, the infant form of recovery is progressing on a critical path. Startups and throughputs are encouraging versus our financial commitment.
Patrick Lockwood: What we said is what happened what we said we were going to do is what we've done and where we thought it would net out as where it is.
Patrick Lockwood: It out so we feel we're on track to hit our 24 commitments.
Patrick Lockwood: As we've talked several times today, the infant formula recovery is progressing per critical path.
Patrick Lockwood: I'll start ups and throughput are encouraging versus our financial commitments.
Patrick Lockwood: Additionally, we have not talked much about it today, but Energize was extremely well executed, and we're on or ahead of our targets there. It's very early, but we should be encouraged. It's a new standard for Perrigo in terms of launch excellence, and we have much to learn and reapply from that. We remain laser focused, though, on the execution of our key 25 priorities and seeing through the financial commitments. Thank you very much for joining us today.
Patrick Lockwood: Additionally, we have and we have not too much about it today, but energized and enjoys was extremely well executed.
Patrick Lockwood: On or ahead of our targets.
Patrick Lockwood: Although it's very early but we should be encouraged as a new standard for pair ago in terms of launch excellence and must learn and reapply from that.
Patrick Lockwood: We remain laser focused though.
Patrick Lockwood: Execution excellence of our key 25 priorities.
Patrick Lockwood: Seeing through the financial commitments we've made.
Patrick Lockwood: Thank you very much for joining us today.
Patrick Lockwood: Yeah.
Speaker Change: Thank you that concludes our conference for today. Thank you for participating you may all disconnect.
Operator: Thank you. That concludes our conference for today. Thank you for participating. You may all disconnect.
Operator: [music].