Q2 2024 Perrigo Co PLC Earnings Call
Operator: Good morning, ladies and gentlemen, and welcome to Perrigo's second quarter 2024 financial results conference call. At this time, all lines are in a listen-only mode.
Good morning, ladies and gentlemen, and welcome to the Perrigo second quarter 2024 financial results Conference call. At this time all lines are in a listen only mode. Following the presentation. We will conduct a question and answer session. You bet anytime during this call you acquire elite.
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Operator: Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, August 2, 2024. I would now like to turn the conference over to Bradley Joseph, Vice President of Global Investor Relations. Please go ahead.
Call is being recorded on Friday August two 2024 hour I'll like to turn your conference over to Randy Joseph Vice President of Global Investor Relations. Please go ahead.
Bradley Joseph: Good morning and good afternoon, everyone. Welcome to Perrigo's second quarter 2024 earnings conference call. I hope you all had a chance to review our press release issued today. A copy of the release and presentation for today's discussion are available in the investor section of the Perrigo.com website. Joining today's call are President and CEO, Patrick Lockwood-Taylor, and CFO, Eduardo Bezerra.
Speaker Change: Good morning, and good afternoon, everyone. Welcome to Paradise second quarter 2024 earnings Conference call I Hope you all had a chance to review our press release issued today a copy of the release and presentation for today's discussion are available within the Investor section of <unk> Dot Com website.
Speaker Change: During today's call are president and CEO, Patrick Lockwood, Taylor and CFO Eduardo Bezerra.
Bradley Joseph: 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 release 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 release issued earlier today.
Speaker Change: Few items before we start.
Bradley Joseph: First, unless otherwise stated, all financial results discussed and presented are on a continuing operations basis. Continuing operations include the HRA rare diseases business, which is classified as help for sale after the first 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: First unless otherwise stated all financial results discussed and presented on a continuing operations basis.
Speaker Change: Continuing operations include the HRA rare diseases business, which is classified as held for sale. After the first quarter end and does not include any contributions from the divested Rx business, which was accounted for as discontinued operations prior to its sale.
Speaker Change: Second organic growth excludes acquisitions divestitures exited product lines and currency in both comparable periods.
Patrick Lockwood: 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 Patrick's discussion will focus solely on non-GAAP results, except as otherwise noted see the appendix for additional details on <unk>.
Bradley Joseph: And third, Patrick's discussion will focus solely on non-GAP results, except as otherwise noted. See the appendix for additional details and reconciliations of all non-GAP financial measures presented. And with that, I'm pleased to turn the call over to Patrick.
Patrick Lockwood: Reconciliations of all non-GAAP financial measures presented.
Patrick Lockwood: With that I am pleased to turn the call over to Patrick.
Patrick Lockwood: Thank you, Brad. Good morning. Good afternoon, everyone.
Patrick Lockwood: Thank you Brad good morning, and good afternoon, everyone.
Patrick Lockwood: So to begin today's call, I'd like to briefly reflect on my first 12 months as CEO and the significant strides our team has made to advance our One Perrigo vision. As we are building out critical capabilities needed to win in self-care, we have also faced challenges, notably in the Infant Formula Regulatory Environment in the U.S. as we work together to ensure the supply of this critical product for caregivers and babies. I've been especially proud to work alongside my team as we have addressed these issues head-on and with a spirit of resilience.
Patrick Lockwood: So to begin today's call I'd like to briefly reflect on my first 12 months as CEO of.
Patrick Lockwood: Now the significant strides our team has made to advance our <unk> vision.
As we are building out critical capabilities needed to win and so.
We have also faced challenges, notably in the infant formula the regulatory environment in the U S. As we work together to ensure the supply of this critical product for caregivers and babies.
Patrick Lockwood: Been especially proud to work alongside my team as we've addressed these issues head on and with the spirit of resiliency.
Patrick Lockwood: We're emerging as a stronger company as a result of these efforts. I've spent considerable time assessing our organization, portfolio, and the competitive landscape. This body of work has only reinforced my original thesis that Perrigo has a strong foundation with a robust asset base.
Patrick Lockwood: We are emerging as a stronger company as a result of these efforts.
Patrick Lockwood: I've spent considerable time assessing our organization portfolio and the competitive landscape.
This body of work has only reinforced my original thesis that Perrigo has a strong foundation with a robust asset base.
Patrick Lockwood: I believe we are poised for greater scale across multiple fronts and have the capacity to drive value-accretive growth through consumer-led innovation. This work has also identified the highest potential growth opportunities within our company to date and will inform our strategic go forward portfolio, which we look forward to discussing early next year. We have also executed key cost savings and efficiency initiatives. Some of these savings will be reinvested to fund both near and long-term priorities, including brand-building capabilities in the U.S., and provide greater scale for our identified growth opportunities.
Patrick Lockwood: I believe we are poised with greatest scale across multiple fronts and have the capacity to drive value accretive growth through consumer led innovation.
Patrick Lockwood: This work has also identified the highest potential growth opportunities within our company today.
Patrick Lockwood: And will inform our strategic go forward portfolio.
Patrick Lockwood: Which we look forward to discussing early next year.
Patrick Lockwood: We are also executing key cost savings and efficiency initiatives with excellence some.
Patrick Lockwood: Some of these savings will be reinvested to fund, both near and long term priorities, including Brian building capabilities in the U S and provide greater scale.
Patrick Lockwood: Our identified growth opportunities.
Patrick Lockwood: Additionally, we have made significant progress in strengthening infant formula and are working through long-term sustainable growth plans for our U.S. store brand business. Finally, when I started at Perrigo, I was excited to encounter an organization comprised of dedicated and talented individuals who are committed to excellence and achieving top-tier performance.
Patrick Lockwood: Additionally, we have made significant progress in strengthening infant formula and are working through long term sustainable growth plans for our U S store brand business.
Patrick Lockwood: Finally, when I started a pair ago I was excited to encounter an organization comprised of dedicated and talented individuals who committed to excellence and achieving top tier performance over.
Patrick Lockwood: Over the past 12 months, we have further built on this foundation, welcoming additional world-class talent to the company in such areas as quality, brand building, and other leadership, which has strengthened our consumer focus and overall capability. In summary, we have completed a great deal of strategic work, all while driving execution across our business. I'm energized by the passion and commitment of my colleagues and remain enthusiastic about the opportunities Perrigo has to create value.
Patrick Lockwood: Over the past 12 months, we have further built on this foundation welcoming additional world class talent to the company in such areas as quality, Brian building, another leadership, which has strengthened our consumer focus and overall capabilities.
In summary, we have completed a great deal of strategic work or driving execution across our business.
Patrick Lockwood: Im energized by the passion and commitment of my colleagues I remain enthusiastic about the opportunities perrigo has to create value.
Patrick Lockwood: Year to date, we have delivered on our commitments while managing certain challenges. We discussed at the start of the year that efforts to enhance our quality-assured infant formula network would have a meaningful impact on first-half results, and they did, impacting organic next sales by 5.3 percentage points and earnings per share by 43 cents versus the prior year. After committing intense energy and resources to strengthening infant formula, this business is now poised to deliver ahead of our original expectations for the year. More on this in a few moments.
Patrick Lockwood: Year to date, we have delivered on our commitments, while managing certain challenges.
Patrick Lockwood: We discussed at the start of the year that efforts to enhance our quality assured infant formula network would have a meaningful impact on first half results and they did.
Patrick Lockwood: Impacting organic mix Soc by five three percentage points and earnings per share by 43.
Patrick Lockwood: Versus the prior year.
Patrick Lockwood: After committing intense energy and resources to strengthening and some formula. This business is now poised to deliver ahead of our original expectations for the year.
Patrick Lockwood: More on this in a few moments.
Patrick Lockwood: We also said that we expect to deliver a 24 gross margin of approximately 40%, excluding the infant formula impact, and in the first half of the year, we did just that. This performance reflects the positive impacts of product mix driven by growth in our branded portfolio and our supply chain and project energized efficiency program. Finally, we delivered on our first half EPS and continue to expect a sizable earnings uplift in the second half.
Patrick Lockwood: We also said that we expect to deliver 24 gross margin of approximately 40% excluding them from former impacts.
Patrick Lockwood: In the first half of the year, we did just that.
Patrick Lockwood: This performance reflects the positive impacts of product mix driven by growth in our branded portfolio.
Speaker Change: <unk> chain and projects energize efficiency programs.
Speaker Change: Finally, we delivered on our first half EPS and continue to expect sizable earnings uplift in the second half.
Patrick Lockwood: While they were headwinds to our top line, a diversified portfolio, accretive initiatives, and relentless execution enabled us to deliver on our bottom line expectations. Overall, I'm pleased with our first half performance and particularly in how we've addressed challenges in infant formula. At the same time, however, there are business dynamics that have changed during the quarter, and these merit discussion. First, we are confident in the recovery of our infant formula business and expect profitability to recover faster than originally expected for the year. Second, Perrigo's global diversified business insulates us from major seasonal impacts.
Speaker Change: While there were headwinds to our top line, a diversified portfolio accretive initiatives and relentless execution enabled us to deliver on our bottom line expectations.
Speaker Change: Overall, I am pleased with our first half performance and particularly in how we've addressed challenges in infant formula.
Speaker Change: At the same time, however, there are business dynamics that have changed during the quarter and these merit discussion.
Speaker Change: First we are confident in the recovery of our infant formula business and expect profitability to recover faster than originally expected for the year.
Speaker Change: Second <unk> global diversified business Insulates us from major seasonal impacts during the second quarter cough cold and allergy volume consumption in geographies, where we compete decline mid to high single digits stemming from much lower seasonal incidences and net.
Patrick Lockwood: During the second quarter, cough, cold, and allergy volume consumption in geographies where we compete declined mid to high single digits, stemming from much lower seasonal incidences and net changes in inventory levels at U.S. retail customers. These factors led to lower net sales of our COVID-19 energy products in the second quarter. The result of these dynamics is an unfavorable impact on our 24 net sales outlook of approximately two and a half percentage points. A diversified business model, however, helps us to absorb these sales impacts further down our P&L. Third, we turn to our U.S. store brand.
Speaker Change: Changes in inventory levels at U S retail customers.
Speaker Change: These factors led to lower net sales of a cough cold and allergy products in the second quarter.
Speaker Change: The result of these dynamics has an unfavorable impact to our 24 net sales outlook of approximately two and a half percentage points.
Speaker Change: Our diversified business model, however, helps us to absorb the cells impacts further derma P&L.
Third turning to our U S store brand.
Patrick Lockwood: Perrigo has a rich history as a market leader in this space, and we're confident in the value we bring to customers and consumers. At the same time, we continue to focus on improving margins to deliver value to shareholders. This can lead to certain instances where we make the strategic and economic decision to walk away from the business. In the second quarter, we did just that.
Speaker Change: <unk> has a rich history as a market leader in this space and we are confident in the value we bring to customers and consumers at the same time, we continue to focus on improving margins to deliver value to shareholders. This can lead to certain instances, where we make the strategic and economic decision to walk away from business.
Patrick Lockwood: During negotiations with one customer, we tactically walked away from a portion of our business that was becoming too dilutive to our margin. This loss distribution is resulting in a one and a half percentage point headwind to our 24 net sales outlook. However, as the current net value of contracts awarded and lost in 2024 is positive, we expect this net sales headwind to be fully offset in 2025. The culmination of these three business updates is anticipated to enhance our four-year gross margin, now expected to approach 40%.
Speaker Change: And in the second quarter, we did just that during negotiations with one customer we tactically walked away from a portion of our business that was becoming too dilutive to our margins.
Speaker Change: This loss distribution is resulting in one and a half percentage point headwind to our 24 net sales outlook.
Speaker Change: However, as the current net value of contracts awarded in lost in 'twenty. Four is positive. We expect this net sales headwind to be fully offset in 2025.
Speaker Change: The culmination of these three business updates is anticipated to enhance our full year gross margin now expected to approach 40% previously we had expected full year gross margin of approximately 40%, but excluding the impact from infant formula.
Patrick Lockwood: Previously, we had expected a four-year gross margin of approximately 40%, but excluding the impact of infant formula. Summing this up, our lower net sales outlook for 2024 is expected to be offset by improved gross margin expansion due to a faster than expected recovery of infant formula profitability and improved mix in the rest of the business, as well as lower variable expenses this year. This gives us the confidence to reaffirm a four-year EPS outlook.
Speaker Change: Summing this up a lower net sales outlook for 'twenty four is expected to be offset by improved gross margin expansion.
Speaker Change: Due to faster than expected recovery of infant formula profitability.
Speaker Change: An improved mix and the rest of the business as well as lower variable expenses this year.
This gives us the confidence to reaffirm our full year EPS outlook.
Patrick Lockwood: Now, let's dig into our second quarter results. Organic net sales declined 9.1%, which included an expected impact of minus almost seven percentage points from infant formula and an impact of four percentage points from lower sales in the upper respiratory and painless sleep aid categories, partially offset by a growth of 1.7 percentage points from the rest of the business.
Speaker Change: Now, let's dig into our second quarter results.
Speaker Change: Organic net sales declined nine 1% which included.
Speaker Change: Specced in impact of minus almost seven percentage points from infant formula and an impact of four percentage points from lower sales in the upper respiratory and payments sleep AIDS categories, partially offset by growth of one seven percentage points from the rest of the business.
Patrick Lockwood: Growth in operating margins expanded meaningfully year over year, plus 190 basis points and 160 basis points, respectively. However, sequentially, the expansion was even more pronounced as both gross and operating margins expanded more than 400 basis points compared to Q1 2024. Operating income in the quarter was up 1.5% or 16.7% excluding the year-over-year impact from infant formula.
Speaker Change: Gross and operating margins expanded meaningfully year over year, plus 190 basis points and 160 basis points respectively.
Speaker Change: Sequentially. The expansion was even more pronounced as both gross and operating margins expanded more than 400 basis points compared to quarter one 2024.
Speaker Change: Operating income in the quarter was up one 5% or 16, 7%, excluding the year over year impact from infant formula.
Patrick Lockwood: Second quarter EPS was $0.53, which whilst down $0.10 from a year ago, this is due primarily to a $0.09 per share discrete tax benefit in the prior year and the year-over-year impact from infant formula, 14, which was mostly offset by performance across the rest of the business. Let's look at the component of organic net cells now in further detail. As just discussed, the nutrition category was the largest headwind stemming from actions we are taking to strengthen our quality-assured infant formula network.
Speaker Change: Second quarter EPS was <unk> 53, which was down 10 from the.
Speaker Change: A year ago. This was due primarily to a nine <unk> per share discrete tax benefit in the prior year and the year over year impact from infant formula.
Speaker Change: <unk>, which was mostly offset by performance across the rest of the business.
Speaker Change: Looking at the components of organic net sales now in further detail.
Speaker Change: As just discussed the nutrition category was the largest headwind stemming from actions, we are taking to strengthen our quality assured infant formula network.
Patrick Lockwood: The net sales impact of minus four percentage points from the upper respiratory and Pain and Sleep Aids category was due to, one, lower seasonal demand in the current year; two, a net change in inventory levels at US retail customers, where we experienced restocking of inventory in the prior quarter and destocking in the second quarter of 2024. These inventory dynamics and the lower seasonal demand I just mentioned accounted for approximately three points of the four point decline.
Speaker Change: The net sales impact of minus four percentage points from the upper respiratory.
Speaker Change: And pain and sleep AIDS category was due to one lower seasonal demand in the current year to net change in inventory levels at U S retail customers, where we experienced restocking of inventory in the prior quarter and Destocking in the second quarter of 2020 for these.
Speaker Change: These inventory dynamics and the lowest seasonal demand I just mentioned accounted for approximately three points of the four points decline.
Patrick Lockwood: And lastly, skew prioritization actions to enhance margin accounted for the remaining one point. As a side note, this now completes America's SKU prioritization actions under our supply chain reinvention program. These impacts more than offset the positive 1.7 percentage points of growth across the rest of the business driven primarily by our global branded portfolio. This branded growth included the recent launch of Opil, which, along with Ella One, drove growth in the women's health category. Additionally, share gains in Compede and Jungle Formula led growth in skincare.
Speaker Change: And lastly, SKU prioritization actions to enhance margin accounted for the remaining one point.
Speaker Change: As a side note. This now completes the Americas SKU prioritization actions under our supply chain reinvention program.
Speaker Change: These impacts more than offset the positive one seven percentage points of growth across the rest of the business driven primarily by global branded portfolio.
Speaker Change: This branded growth included the recent launch of <unk>, which along with Ela one drove growth in the women's health category.
Speaker Change: Additionally share gains and compete in dromgoole formula like growth in skincare.
Patrick Lockwood: Looking at our 24 operational priorities, I'm pleased to say we remain well on track. We've made significant progress augmenting and strengthening our infant formula business and are increasingly confident in our second half recovery as production volumes return. Opioid sales continue to grow in the U.S., and our team is actively monitoring and analyzing consumer awareness, trial, conversion, and repeat usage through our real-time technology stack. This analysis allows us to make swift and informed decisions, leveraging instantaneous insights to optimize our strategy.
Speaker Change: Looking at our 24 operational priorities I'm pleased to say, we remain well on track.
Speaker Change: We've made significant progress augmenting and strengthening our interim formula business and are increasingly confident in our second half recovery as production volumes return.
Speaker Change: <unk> sales continued to grow in the U S T.
Speaker Change: Team is actively monitoring and analyzing consumer awareness trial conversion and repeat usage through a real time technology stacks.
Speaker Change: This analysis allows us to make swift and informed decisions leveraging instantaneous insights to optimize our strategy.
Patrick Lockwood: We're learning what sticks with consumers, and we'll continue working with customers to enhance consumer interest for the product. We are confident that Opio will be an important reproductive health product for women in the U.S. for many years to come.
Speaker Change: We're learning what sticks with consumers and will continue working with customers to enhance consumer interest for the product.
Speaker Change: We are confident that <unk> will be an important reproductive health product for women in the U S for many years to come.
Patrick Lockwood: We also continue to benefit from our accretive initiatives. First, we're on track to deliver a total of $25 million in incremental HRA synergies this year. Second, our Supply Chain Reinvention Program achieved gross savings of $23 million and a gross margin of expansion of 40 basis points from the SKU prioritization actions. And finally, Project Energize achieved $53 million of gross savings in the first half of the year.
Speaker Change: We also continued to benefit from our accretive initiatives first we are on track to deliver a total of $25 million and incremental HRA synergies this year.
Speaker Change: Second our supply chain reinvention program achieved gross savings of $23 million.
Speaker Change: And our gross margin.
Speaker Change: Expansion of 40 basis points from the SKU prioritization actions year to date.
Speaker Change: And finally project energize achieved $53 million of gross savings in the first half of the year and we remain well on target to deliver $140 million to $170 million and pre tax annualized gross savings by 2026.
Patrick Lockwood: And we remain well on target to deliver $140 to $170 million in pre-tax annualized gross savings by 2026. Now, for infant formula. All sites are up and running, producing reliable, quality-assured infant formula. Our focus now lies on rebuilding customer service levels and swiftly getting these critical products back on the shelves to serve consumers who need high-quality, affordable infant formula. We're currently making significant progress in quality control, production, packaging, and release attainment. On a weekly basis, production volumes through the first four months of this year were approximately half of 2023's average weekly level.
Speaker Change: Now to infant formula.
Speaker Change: <unk> are up and running producing reliable quality assured infant formula our focus now lies in rebuilding customer service levels and swiftly getting these critical products back on the shelves to serve consumers who need high quality affordable infant formula.
Speaker Change: We're currently making significant progress in quality control production packaging and release attainment.
Speaker Change: On a weekly basis production volumes through the first four months of this year were approximately half of 2020 Three's average weekly levels.
Patrick Lockwood: During May and June, as we ramped up production following the remediation efforts with our new protocols in place, we immediately achieved production volumes of 90% of the prior year levels. And our latest data available for July reveals that production is on a path to return fully to prior year levels. Furthermore, manufacturing efficiencies are recovering faster than expected, stemming from reductions in production stoppages and product scrapping, giving us confidence in the recovery of our second half profitability.
Speaker Change: During may and June as we ramped up production following the remediation efforts with our new protocols in place.
Speaker Change: We immediately achieve production volumes with 90% of the prior year levels on our latest data available for July revealed that production is on a path to return fully to prior year levels.
Furthermore, manufacturing efficiencies are recovering faster than expected stemming from reductions in production stoppages and product scrapping, giving us confidence in the recovery of a second half profitability.
Patrick Lockwood: I want to relay my thanks to the entire team for achieving this outstanding progress and their dedication to getting this business back on track. Progress made against our self-imposed remediation plans has been impactful, both to our financial results and also to the health of our business. But this business is not without other known challenges.
Speaker Change: I wanted to relay my thanks to the entire team on achieving this outstanding progress and their dedication to getting this business back on track.
Speaker Change: Progress made against our self imposed remediation plans.
Speaker Change: Have been impactful to our financial results, but also to the health of our business.
This business is not without other known challenges as you may recall, the Genesis behind Purgo acquiring its Wisconsin facility from less late in 2022 was to bolster our network and eventually replace an aging facility through this cost effective acquisition.
Patrick Lockwood: As you may recall, the genesis behind Perrigo acquiring its Wisconsin facility from Nestle in 2022 was to bolster our network and eventually replace an aging facility through this cost-effective acquisition. Now that we are producing reliable, quality-assured infant formula across the network, we will now start the work on optimizing our production footprint over time. So, in summary, our business is strong, we remain on track to deliver our critical, accretive initiatives, and margins are anticipated to continue to expand.
Speaker Change: Now that we are producing reliable quality assurance from formula across the network. We will now start the work on optimizing our production footprint overtime.
Speaker Change: So in summary, our business is strong we remain on track to deliver our critical accretive initiatives.
Speaker Change: Margins are anticipated to continue to expand we've made significant progress in infant formula and are very focused now on driving performance in U S store brand.
Patrick Lockwood: We've made significant progress in infant formula and are now very focused on driving performance in U.S. store brands. We are successfully consumerizing, simplifying, and scaling One Perrigo. Our investments in brand building capabilities are starting to pay off, and we have tremendous growth opportunities ahead of us. The strategic work on how to win continues, and we expect the outcomes from this important initiative will pay dividends in 2025, 2026, and beyond. Critically, our team remains focused on delivering on our commitments and delivering the balance. Perrigo plays a vital role in a sizable and growing self-care market by delivering value to consumers and society.
Speaker Change: We are successfully consumer rising simplify scaling one pair ago, our investments in brand building capabilities are starting to pay off and we have tremendous growth opportunities ahead of us.
Speaker Change: The strategic work and had a wind continues and we expect the outcomes from this important initiative will pay dividends and $25 26 and beyond.
Speaker Change: Critically our team remains focused on delivering on our commitments and delivering the balance sheet.
Speaker Change: <unk> plays a vital role in our sizable and growing self care market by delivering value to consumers and society.
Patrick Lockwood: I want to thank, of course, my 9,000 plus Perrigo colleagues for their commitment to increasing access for consumers around the world. And with that, I will now turn the call over to our CFO, Eduardo Bezerra, to cover the financials.
Eduardo Bezerra: I want to thank of course by 9000, plus purgo colleagues for their commitment to increasing access to consumers around the world and with that I will now turn the call to our CFO Eduardo Bezerra to cover the financials Eduardo.
Eduardo Bezerra: Thank you, Patrick. Good morning and good afternoon, everyone.
Thank you Patrick good morning, and good afternoon, everyone.
Eduardo Bezerra: We will look at the second quarter financials, starting with the gap to non-gap summary. Primary adjustments to our second quarter non-gap P&L were first amortization expenses of $58 million, restructuring charges of $37 million, primarily related to Project Energize, and a $34 million impairment charge related to the divested HRA Pharma rare disease business. Full details can be found in the No-Gap Reconciliation tables attached to today
Eduardo Bezerra: Looking at the second quarter financials, starting with the GAAP to non-GAAP summary.
Eduardo Bezerra: Primary adjustments to our second quarter, non-GAAP, P&L, where first amortization expenses of $58 million.
Eduardo Bezerra: Restructuring charges of $37 million, primarily related to project energize.
Eduardo Bezerra: And a $34 million impairment charge related to the divested HRA pharma rare disease business full details can be found in our non-GAAP reconciliation tables attached to todays press release.
Eduardo Bezerra: From this point forward, all financial results discussed will be on an adjusted basis unless otherwise noted. Since Patrick has already discussed second quarter consolidated top line results, I will fast forward to operating results. Operating income of $139 million grew 1.5% versus a year ago as benefits from accretive initiatives, including our supply chain reinvention and project-energized programs, more than offset the impact from lower net sales and actions in infant formula. Excluding the year-over-year impact from infant formula, operating income grew plus almost 17%.
Eduardo Bezerra: From this point forward all financial results discussed will be on an adjusted basis unless otherwise noted.
Patrick Lockwood: Since Patrick already discussed second quarter consolidated topline results are well fast forward to operating results operating income of $139 million grew one 5% versus year ago as benefits from our creative initiatives, including our supply chain reinvention and project debt.
Patrick Lockwood: <unk> programs more than offset the impact from lower net sales and actions in infant formula excluding the year over year impact from infant Formula operating income grew plus almost 17%.
Eduardo Bezerra: EPS was $0.53, down $0.10 from a year ago, due primarily to a $0.09 per share, discrete tax benefit in the prior year and a year-over-year impact from infant formula of $0.14, which was mostly offset by strong performance across the rest of our budget. Year-to-date organic net sales declined 8.1%, including an unknown minus 5.3 percentage points impact from infant formula and minus 4.4 percentage points impact from the upper respiratory and pain sleep aids categories that Patrick just mentioned.
Patrick Lockwood: As was.
Patrick Lockwood: 53% down 10 from a year ago, due primarily to a nine cents per share discrete tax benefit in the prior year and a year over year impact from infant formula our 14th.
Patrick Lockwood: Which was mostly offset by strong performance across the rest of our business.
Patrick Lockwood: Year to date organic net sales declined eight 1%, including a known and minus five three percentage points impact from infant formula and minus four four percentage points impact from the upper respiratory and pain as leap age categories that Patrick just mentioned.
Eduardo Bezerra: These impacts more than offset plus 1.6 percentage points of growth across the rest of the company. Year-to-date adjusted operating income was down almost 10%, excluding the year-over-year impact from infant formula; operating income grew almost 17%. Year-to-date earnings per share declined $0.25, or 23%, including the impact from the infant formula of $0.43 and the prior year discrete tax benefits of $0.09. Looking at organic top-line performance by segment, starting with CSEI, organic growth in the quarter was plus 1%.
Patrick Lockwood: These impacts more than offset plus one six percentage points of growth across the rest of the business.
Patrick Lockwood: Year to date adjusted operating income was down almost 10% excluding the year over year impact from infant Formula operating income grew almost 17%.
Patrick Lockwood: Year to date earnings per share declined 25 or.
Patrick Lockwood: Our 23%, including the impact from infant formula of <unk>, III <unk> and the prior year discrete tax benefits of nine.
Looking at organic top line performance by segment, starting with CACI.
Patrick Lockwood: Organic growth in the quarter was plus 1%.
Eduardo Bezerra: Lower seasonal demand and supply constraints in the upper respiratory and pain and sleep aid categories resulted in a 3.5 percentage point headwind versus the prior year. However, this was more than offset by strong growth of 4.5 percentage points across the rest of the segment, led by market share gains in key brands such as Compeed, Ella One, and Paranix, in addition to high single-digit growth in our UK store brand business. In CSEA, organic net sales declined 15% due to minus 10.8 percentage points from infant formula and minus 4.4 percentage points from the upper respiratory and pain and sleep aids category.
Speaker Change: Lower seasonal demand and supply constraints in the upper respiratory and painlessly paid categories resulted in a three five percentage points headwind versus the prior year. This was more than offset by strong growth of four five percentage points across the rest of the segment led by market share gains in key.
Speaker Change: Brands, such as compete <unk> and <unk>. In addition to high single digit growth in our U K store brand business.
And the FCA organic net sales declined 15% due to minus 10, eight percentage points from infant formula and minus four four percentage points from the upper respiratory and painters lipids categories.
Eduardo Bezerra: OrganicNet sales included a reduction of 1.8 percentage points from the final tranche of SKU prioritization actions to increase margins. Growth across the rest of this segment was flat. And importantly, our OTC brands grew more than 40%, driven by Opio, Nasonex, and Mederva. Margin expansion has been a top focus for our team. As you can see on the slide, this focus has translated into meaningful margin improvement over the past couple of
Speaker Change: Organic net sales included.
Speaker Change: A reduction of one eight percentage points from the final price of SKU prioritization actions to increase margins.
Speaker Change: Growth across the rest of the segment was flat and importantly, our OTC brands grew more than 40% driven by our appeal nasonex in the derma.
Margin expansion has been a top focus for our team as you can see on this slide that the focus has translated into meaningful margin improvement over the past couple of years and we remain on track to achieve our operating margin target of 14% to 16% by the end of 2012.
Eduardo Bezerra: And we remain on track to achieve our operating margin target of 14% to 16% by the end of 2020. In Q2, gross and operating margin expanded 190 and 160 basis points, respectively. These were driven primarily by accretive benefits from our supply chain reinvention program, including the SQ prioritization action we just discussed and project energy. Also worth highlighting is the sequential progress of operating margin.
Speaker Change: In Q2, gross and operating margin expanded 190, and 160 basis points respectively.
These were driven primarily by accretive benefits from our supply chain reinvention program include the SKU prioritization accident, we just discuss it and project energize.
Speaker Change: Also worth highlighting is the sequential progress of margins, both gross and operating margins expanded more than 400 basis points quarter over quarter.
Eduardo Bezerra: Both gross and operating margins expanded more than 400 basis points quarter over quarter. As I just mentioned, second quarter earnings per share of 53 cents declined 10 cents versus the prior year. This change included discrete tax benefits in the prior year quarter and impact from the acquisition of infant.
Speaker Change: As I, just mentioned second quarter earnings per share of 50% decline versus prior year. This change included discrete tax benefits in the prior year quarter and impact from infant formula.
Eduardo Bezerra: Moving to cash, our cash on the balance sheet at the end of the second quarter was $543 million, not including upfront proceeds of $205 million received from the divestiture of the rare disease business completed on July 10, 2024. Year-to-date operating cash flow was $8 million, as cash generated from the business was mostly offset by first, $40 million of restructuring costs primarily related to Project Energize, and second, $97 million from the shareholder lawsuit we settled last quarter.
Speaker Change: Moving to cash.
Speaker Change: Our cash on the balance sheet at the end of the second quarter was $543 million not including upfront proceeds after a $105 million received from the Divesture of the rare disease business completed on July 10 2024.
Speaker Change: Year to date operating cash flow was $8 million as cash generated from the business was mostly offset by first $40 million of restructuring costs, primarily related to project energized and second $97 million from the shareholder lawsuit we settled last quarter.
Eduardo Bezerra: As a reminder, we expect a full recovery of these $97 million from insurance, still during 2020. During this quarter, we invested $29 million in capital expenditures and returned $38 million to shareholders through the. We continue to anticipate operating cash flow conversions for the full year of 90% to 100% as a percentage of adjusted netting. In total, our estimated ending cash balance for 2024 remains between $500 million and $550 million, including the expected recovery of the $97 million shareholder set.
Speaker Change: As a reminder, we expect a full recovery of these $97 million from insurance steel during 2024.
Speaker Change: During this quarter, we invested $29 million in capital expenditures and returned $38 million to shareholders through dividends.
Speaker Change: We continue to anticipate operating cash flow conversion for the full year of 90% to 100% as a percentage of adjusted net income.
Speaker Change: In total our estimated ending cash balance for 2024 remains between $500 million to $550 million included the expected recovery of the $97 million shareholder settlement.
Eduardo Bezerra: And as committed, we continue to expect a net leverage ratio of approximately 3.8 to 4 times at year end. Turning to our 2024, we're increasingly optimistic about our infant formula business. Our global branded portfolio continues to perform well, and we expect a normal selling for the upcoming 24, 25 coughing cold. However, we updated our 2024 Net Sales Growth Outlook versus the prior year. While this does not impact our EPS outlook, we now expect Organic Net Sales to decline in the range of 1% to 3% and All-In Net Sales to decline in the range of 3% to 5%. These updated net sales ranges imply a four-percentage point change in the midpoint compared to our previous net sales out... This is due to two primary factors.
Speaker Change: And Thats committed to we continue to expect our net leverage ratio of approximately three 8% to four times at year end.
Speaker Change: Turning to our 2024 outlook, we're increasingly optimistic about our infant formula business, our global branded portfolio continues to perform well and we expect a normal sell in for the upcoming 'twenty four 'twenty five cough and cold season How's.
However, we updated our 2024 net sales growth outlook versus the prior year. While this does not impact our EPS outlook. We now expect organic net sales to decline in the range of 1% to 3% and all in net sales to decline in the range of 3% to 5%.
Speaker Change: These updated net sales ranges imply a four percentage point change in the midpoint to all our previous net sales outlook does it due to two primary factors first.
Eduardo Bezerra: First, 2.5 percentage points from our second quarter results stemming from lower global seasonal demand and US retailer destocking. And second, 1.5 percentage points from US store brand due primarily to the business we walked away from, which Patrick discussed. As a reminder, we expect this 1.5% net sales headwind to our 2024 outlook from US store brand to be offset with new business wins, leading to no impact on top-line growth in 2022.
Patrick Lockwood: Two five percentage points from our second quarter results stemming from lower global seasonal demand and U S retailer Destocking and second one five percentage points from U S store brand due primarily to the business, we walked away from which Patrick discussed as our.
Speaker Change: Minder, we expect these one five percentage point net sales headwind to our 'twenty to 'twenty four outlook from U S store brand to be offset with new business wins, leading to no impact to top line growth in 2025.
Eduardo Bezerra: Pulling this together, and as just noted, the P&L impact from the updated net sales outlook is expected to be offset by improved gross margin expansion and lower variable expenses. This gives us confidence to reaffirm our full year 2024 adjusted earnings per share outlook of $2.50 to $2.65. Interest expense, the effective tax rate, and operating cash flow conversion remain unchanged, and we now expect lower cash spend related to infant formula remediation. Our second half earnings per share is expected to be more than double our first half. Let me provide some color here.
Speaker Change: Pulling this together and as just noted the P&L impact from the update in net sales outlook is expected to be offset by improved gross margin expansion and lower variable expenses. This year. This gives us confidence to reaffirm our full year 2024 adjusted earnings per share al to low cost too.
Speaker Change: <unk> 50 to $2 65.
Interest expense effective tax rate and operating cash flow conversion remain unchanged and we now expect lower cash spend related to infant formula remediation.
Speaker Change: Our second half earnings per share is expected to be more than double our first half. Let me provide some color here that three key drivers of these expected growth first is the recovery of the infant formula business is starting with the absence of significant remediation costs included extended.
Eduardo Bezerra: There are three key drivers of this expected growth. First is the recovery of the infant formula business, starting with the absence of significant remediation costs, including extended plant shutdowns that took place in this first half of the year. Next, the phasing of sales has always been weighted heavily to the back half, which you see drives a meaningful contribution to the balance of the economy. Second, the timing of project energized savings, of which we have already made significant upfront investments and have achieved $53 million in gross savings year to date, is expected to result in lower operating expenses in the second half.
Eduardo Bezerra: And finally, the contribution from the rest of the business, which is expected to increase likely compared to the first half driven by the seasonal cough and cold sales. In conclusion, I would like to extend my gratitude to the entire Perrigo team for their continued dedication. We remain confident in our ability to adapt, evolve, and deliver long-term value for our stakeholders. Thank you for your time and continued trust in Perrigo. And now I will turn the call back to Brett. Thank you, Eduardo.
Speaker Change: Planned shut downs that took place in this first half of the year next the phasing our sales has always being weighted heavily to the back half, which youll see it drives a meaningful contribution for the balance of the year.
Speaker Change: Second timing of project in our <unk> savings of which we have already made significant upfront investments and have achieved the $53 million in gross savings year to date is expected to result in lower operating expenses in the second half and finally the contribution from the rest of the business which is expected.
Speaker Change: To increase slightly compared to the first half driven by the seasonal cough and cold selling.
Speaker Change: In conclusion, I would like to extend my gratitude to the entire parallel teams for their continued dedication we remain confident in our ability to adapt evolve and deliver long term value for our stakeholders. Thank you for our time and continued thrusting Pherigo and now I will turn the call back to Bret Bret.
Bradley Joseph: Thank you, Eduardo. Operator, can we please open the call for questions?
Bret: Thank you Eduardo operator can we please open the call for questions.
Operator: Thank you. And, ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question at this time, please press the star followed by the number one on your cell phone keypad. If you would like to withdraw your question, please press the star followed by the number two. One moment, please for your first question. And your first question comes from the line of Chris Schott with JPMorgan. Please go ahead.
Bret: Thank you and ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question at this time. Thank you.
Bret: Followed by the number one on your telephone keypad, if you would like to withdraw your question. Please press the star followed by the number of tier one Brian. Thanks for your first question.
Bret: Yeah.
Speaker Change: And your first question comes from the line of Chris Schott with Jpmorgan. Please go ahead.
Chris Schott: Great. Thanks so much and congrats on the progress here at Nutritionals. I just had a couple questions on this last customer. So maybe you could elaborate a little bit more on what happened here? It sounds like this wasn't a very profitable business you walked away from, but are there any particular segments within CHCA that we should be watching here? And maybe the second part of the question there was, I just wanna make sure I caught the comment regarding the impact on 2025.
Chris Schott: Great. Thanks, so much and congrats on the progress here on Nutritionals.
Chris Schott: <unk> had a couple of questions on this this lost customer.
Chris Schott: So maybe just can you elaborate a little bit more what happened here. It sounds like this wasn't very profitable business you walked away from but.
Speaker Change: Are there any particular segments within CAH CA that we should be watching here and maybe the second part of the question. There was I just want make sure I caught the comment regarding the impact on 2025, it sounds like wins elsewhere will offset offset the business you lost but just maybe talk a little about the margin profile of that new business versus what <unk>.
Chris Schott: It sounds like winds elsewhere will offset the business you lost, but maybe talk a little bit about the margin profile of that new business versus what you lost. So just a little bit more color on that front, and I'll have one follow-up after that.
Speaker Change: So just a little bit more color on that front and I'll have one follow up after that thank you.
Patrick Lockwood: Yeah, hi Chris, this is Patrick. I hope you're well. Thank you for the question. This was a margin-diluting business. We looked at it very carefully. It was one customer. It was several molecules of subcategories.
Speaker Change: Yeah, Hi, Chris This is Patrick Hope you well. Thank you for the question.
Speaker Change: This was a margin dilutive business, we looked at it very carefully it was one customer it was several.
Speaker Change: Molecules of subcategories.
Patrick Lockwood: And we were reporting it because, really, it was a one-off. It was impactful in terms of revenue but positive in terms of margin expansion. And then you're right to pick up on the other point on net gain. We have a net gain on contract one this year in our store brand business. And we'll start to see that revenue flowing in late quarter four, but more predominantly in twenty five. So net it is.
Speaker Change: And we are reporting it because really it was a one off.
Speaker Change: <unk>.
Speaker Change: It was impactful in terms of revenue but.
Speaker Change: A positive in terms of margin expansion.
Speaker Change: And then you're right to pick up on the other points.
Speaker Change: Net gain we have a net gaining contracts won this year in our store brand business and we will start to see that revenue flowing in.
Late quarter four.
Speaker Change: But more predominantly in 25, so net.
Patrick Lockwood: We're not seeing any change in revenue outlook as a result of the loss of that more unprofitable customer. And you're correct again to say that the business is one versus that business lost is more margin accretive.
Speaker Change: Yes.
Speaker Change: We're not seeing any change in revenue outlook as a result of the loss of that more on profitable customer and you're correct again to save the businesses one versus that business lost is more margin accretive yes.
Patrick Lockwood: Okay, very helpful. And then my last question was just about the nutritional business. It seems like you're making good progress here, but just at this stage, how confident are you that you're fully through this process and that there won't be any meaningful setbacks in terms of the recovery and nutrition? I mean, at this point, are you confident to say that, you know, that the remediation that was put forth was successful and that this business is kind of in a good place going forward?
Speaker Change: Okay very helpful.
Speaker Change: And then just my last question was just on the nutritional business.
Speaker Change: It seems like you're making good progress here, but just at this stage how confident are you that you're fully through this process and that there won't be any meaningful setbacks in terms of.
Speaker Change: The recovery in Nutritionals.
Speaker Change: This point are you confident to say that.
Speaker Change: Remediation that was put forth was successful and that this business is kind of in a in a good place going forward.
Patrick Lockwood: Yes, I've been very close to the remediation work. I, as you know, chair the steering committee. The remediation work has been executed extremely well across the three sides. All the key performance indicators show that we are fully quality compliant. I've not seen any backslide in terms of those KPIs, as we've been through the remediation effort, and we're on the other side of that. So really, now it is back to normal manufacturing operations, but in a much more quality-compliant way.
Speaker Change: Yes, I've been very close to the remediation work as you know chair of the steering committee. The remediation work is being executed extremely well across the three sites.
The key performance indicators show that.
Speaker Change: Fully quality compliance.
I've not seen any back slide in terms of those kpis as we've been through the remediation effort and we are on the other side of that.
Speaker Change: So really now it is into normal manufacturing operations, but in a much more quality compliant way.
Unknown Executive: And Chris, just to add a little bit of color there, so the team now is 100% focused on recovering the share, you know, on our storefront business, as well as growing, you know, the other pieces of the business that were impacted, so that's 100% now with the situation more under control from the production and release attainment side, it's the team 100% now focused on the market side to regain the business and working closely with our customers to get products back on shelf.
Speaker Change: Perfect and increase just to just to add a little bit color. There. So the key now is 100% focused on recovering the share.
Speaker Change: Now our store brand business as well as grow.
Speaker Change: Growing.
Speaker Change: <unk>.
Speaker Change: The other pieces of the business that were impacted so that's 100% to now with the situation more under control from the production and released attainment side. The team, 100% now focused on the market side to regain the business and working closely with our customers to get products back on shelf.
Patrick Lockwood: Perfect. And just as a follow-up on that one, in terms of the share regain, any pushback at all from customers, or so far, is that product you're producing, you know, kind of finding a home, I guess, in terms of customers?
Speaker Change: Perfect and then just a follow up on that one in terms of the share regain.
Speaker Change: Any pushback at all from customers or so far is this.
Speaker Change: That product you are producing kind of finding.
Speaker Change: Finding a home I guess.
Speaker Change: Customers.
Patrick Lockwood: Yes, I mean this. This continues to be a capacity constrained industry generally, and we're not having any problem re-pipelining our business.
Speaker Change: Yes.
Speaker Change: This continues to be a capacity constrained industry generally.
Speaker Change: And we're not having any problem re pipelining.
Speaker Change: Business.
Speaker Change: Perfect. Thank you.
Patrick Lockwood: Thanks, Chris. Thank you.
Chris Schott: Thanks, Chris next.
Speaker Change: Next question.
Speaker Change: Yes.
Korinne Wolfmeyer: Your next question comes from the line of Korinne Wolfmeyer with Piper Sandler. Please go ahead.
Speaker Change: Yes. Your next question comes from the line of Korean Welcome Eric.
Piper Sandler: Piper Sandler. Please go ahead.
Korinne Wolfmeyer: Hey, good morning, guys. Thanks for taking the time to answer the question. First, I'd like to touch on the guidance reduction. If I understand correctly, it looks like it is solely coming from that SKU rationalization and then the upper respiratory. So can you confirm those are the main things driving that guidance reduction? And then on the SKU rationalization, can you comment on how quick of a decision that was? Because it obviously wasn't factored into expectations last quarter. And then what gives you confidence that, you know, we might not see another, might not have to have another guidance reduction for further SKU rationalization this year? Yeah, so let's go.
Eric: Hey, good morning, guys. Thanks for taking my question.
Speaker Change: I'd like to touch on the guidance reduction if I understand correctly, it looks like to be solely coming from that.
Eric: That SKU rationalization and then the upper respiratory so can you confirm those are the main things driving driving that that guidance reduction and then on the SKU rationalization can you comment on how quick of a decision that wise because it obviously wasn't factored into your expectations last quarter and then what gives you confidence.
Speaker Change: We might not see it.
Speaker Change: And the other half have another guidance reaction, perhaps our fighters SKU rationalization.
Eduardo Bezerra: Yeah, so let me, Eduardo here, let me clarify. So the changing guidance that we talk about at that midpoint is about four percentile points. Two and a half are related to the impact that we saw in the second quarter, and that's mainly related to the lower global seasonal demand for cough and cold and allergy products and some impact related to the U.S. retailer destocking, while 1.5 comes from lower distribution of the U.S. store brand.
Speaker Change: Yes, So let me Eduardo here, let me clarify so this changing guidance that the talcott that midpoint is about 4% to a points two and a half are related to the mainland the impact that we saw in the second quarter and thats, mainly related to the lower global seasonal demand for coffee cold.
Speaker Change: In allergy and some impact related to the U S retailer Destocking, Hawaii <unk> five comes from lower distribution in the U S store brand so when you're talking about the.
Eduardo Bezerra: So when we talk about the DSQ rationalization, that was already considered as part of our plans. So the four percentage points, you know, reduction in our four-year guidance are related to those two impacts, 2.5 and 1.5 percent, okay?
Speaker Change: The SKU rationalization that was already consider as part of our plans so the four percentage points.
Speaker Change: Reduction on our full year guidance are related to those two impacts $2 five and one 5% okay.
Eduardo Bezerra: That's helpful. And then can you touch on expectations into 2025? I know you're not guiding that far out, but you have previously laid out some commentary on how to think about 2025. With the top line impacts we're seeing, but offset in the P&L, is there any reason that 2025 expectations wouldn't still be intact with the numbers you delivered today? Yeah.
Speaker Change: Got it that's helpful. And then can you touch on expectations.
Speaker Change: The expectation going into 2025, I know youre not guiding that far out, but you have previously laid out some commentary around how do we think about 2025.
Speaker Change: With the topline impact we're seeing.
Speaker Change: Offset in the P&L is there any reason that 2025 expectations when it still be intact.
Speaker Change: With that the number you are delivering today.
Eduardo Bezerra: Yeah, so again, it's still early in the process, you know, and we're seeing a lot of, you know, industry dynamics, mainly, consumer demand being significantly impacted. But at this stage, remember, as we have positioned before, we expect, of course, the significant impact we had in the first half of infant formula to not repeat. So we expect a significant portion of that to be recovered. And so, and at the same time, remember, we mentioned that we would recover that, but we also needed to build some finished goods safety stock.
Speaker Change: Yes, so again, it's still early in the process and we're seeing a lot of.
Speaker Change: Industry dynamics, mainly on <unk>.
Speaker Change: Consumer demand being significantly impacted but at this stage you remember as we have positioned before.
Speaker Change: We expect of course, the significant impact we had in the first half of infant formula to not repeat so we expect a significant portion of that to be recovered.
Speaker Change: And so.
Speaker Change: And at the same time remember, we mentioned that we would recover that but also we needed to build some finished goods safety stock.
Eduardo Bezerra: So I would say a significant portion of the impact that we mentioned that took place in the first half of 2024 should be recovered in 2025, which also implies, you know, that the product will benefit from the price increases that we had in 2023. That's number one.
Speaker Change: I would say a significant portion of the impact that we mentioned that took place in the first half.
Speaker Change: <unk>.
Speaker Change: 2020 floor should be recovered in 2025, which also implies that to be the proud of who will benefit from the price increases that we had in 2023 that's number one.
Eduardo Bezerra: It's going to be very important to understand how consumption and also the upcoming coughing cold selling season take place, right? Because we saw a very significant impact on the whole industry in the first half. So that's going to be a very important item that we're going to be taking a look at. And also, remember that as we mentioned before, we continue to expect opium to be diluted for the next, you know, for the first time since the launch until the next 18 months.
Speaker Change: He is going to be very important to understand how consumption and also the upcoming cough and cold selling season takes place right. Because we saw a very significant impact to the whole industry in the first half. So that's going to be a very important item that we're going to be taking a look and also remember that.
Speaker Change: We mentioned before we continue to expect the appeal to be dilutive for the next.
Speaker Change: For the first since the launch until the next 18 months. So those are the three key factors that we're looking right now but.
Eduardo Bezerra: So those are the three key factors that we're looking at right now, but, you know, it's fair to assess right now that, you know, we mentioned in the previous quarter that it would be $3 plus, and that's what we're looking at right now.
Speaker Change: It's fair to assess right now.
Speaker Change: We mentioned in the previous quarter that we would be.
Speaker Change: $3, plus and that's what we're looking right now.
Patrick Lockwood: Great. And then, if I could squeeze in one more on OPIL, could you please provide a little bit of color around the sell-in versus sell-out differential that you're seeing? I mean, we're able to get some scanner data, and it doesn't fully align with your previous comments on the sales you've been recognizing. And I understand there's also a heavy DTC component that's not factored in the data we get, but any color you can provide on what you're seeing versus that sell-in and sell-out.
Speaker Change: Great and then if I could squeeze in one more can you just provide a little bit of color around the sell in versus sell out differential that youre.
Speaker Change: You're seeing I mean, we're able to get some scanner data and it does not fully aligned with your previous comments on the sales you've been recognizing and I understand there is outside deep heavy DTC component thats not factored in the data.
Speaker Change: Any color you can provide on what youre seeing versus that sell in and sell out.
Speaker Change: Okay.
Speaker Change: But.
Patrick Lockwood: Yeah, hi, this is Patrick. So, very good sell-in, and very good distribution. Obviously, this is a new consumer, a new category. We're learning and refining the model. I would say 30 to 40% of our sales are on e-commerce. Obviously, that channel lends itself to subscribe and save, and we're seeing that. [inaudible] Key learnings, probably shifting media more to awareness generation, and how to operationalize the insurance support that we have with Caremark. We're working through that.
Speaker Change: Yes, Hi, this is Patrick.
Patrick Lockwood: So very good sell in very good distribution, obviously, a new consumer new category.
Patrick Lockwood: <unk>.
Patrick Lockwood: Learning and refining the model I would say, 30% to 40% of our sales are on E. Commerce, obviously that channel lends itself.
Speaker Change: Two two.
Speaker Change: Subscribe and save and we're seeing that.
Speaker Change: Key loadings.
Speaker Change: Robert Blum shifting media more to awareness generation.
Speaker Change: How to operationalize the insurer and support that we have with caremark, we're working through that has significant additional volume opportunity for us.
Patrick Lockwood: That is a significant additional volume opportunity for us. We're learning as well, sort of back to the future, that having retail distribution is not sufficient. Those retailers that are supporting the brand launch with incremental display and clear signage are seeing a materially different sales-through rate, and we want to get that executed across all retailers. That's very important for the category and the consumer. And lastly, continuing to develop our social influence, our HCP network. The role of HCPs in the conversion to this is extremely important, given some of the broad considerations the consumer has in terms of safety, side effects, effectiveness, et cetera.
Speaker Change: We're learning as well.
Speaker Change: Sort of back to the future.
Speaker Change: Having retail distribution is not sufficient those retailers are supporting the brand launch with incremental display clear signage.
Speaker Change: Being a materially different.
Speaker Change: Sell through rates and we want to get that executed across all retailers is very important for the category and the consumer.
Speaker Change: And lastly, continuing to develop a social influencing or HCP network.
Speaker Change: The role of Hcp's and the conversion to this is extremely important given some of the.
Speaker Change: Broad considerations the consumer has in terms of safety side effects effectiveness et cetera, and so we continue to see good awareness builds we continue to see us.
Patrick Lockwood: And so we continue to see good awareness built. We continue to see sales growth. We've just gone through a critical milestone in terms of share. So we're learning and improving. This was never going to be optimized day one, but I'm actually quite pleased with our ability now to read and react and enhance our marketing.
Speaker Change: Sales growth, we've just gone through a critical milestone in terms of share.
Speaker Change: So we're learning and improving this.
Speaker Change: This was never going to be optimized day one.
Speaker Change: But I'm actually quite pleased with.
Speaker Change: With our ability now to read and react and homes.
Speaker Change: Our marketing execution.
Speaker Change: Great. Thanks, so much.
Karyn: Thanks Karyn.
Operator: Thank you, Andy. Your next question and last question come from the line of Daniel Biolsi with HHI. Please go ahead.
Speaker Change: Thank you. Your next question and last question comes from the line of Daniel BLC.
Speaker Change: Please go ahead.
Daniel Biolsi: Thank you. So for the infant formula, my anecdotal evidence is that your demand certainly exceeds your supply. Did you lose any shelf space, and when do you plan on being able to build safety stock? Can you do that without losing shelf space?
Daniel BLC: Thank you so for the infant Formula My anecdotal evidence is your demand certainly exceeds your supply did you lose any shelf space and when do you plan on being able to build safety stock can you do that without losing shelf space.
Eduardo Bezerra: Well, so we're looking to see how much we can start doing in 2024. But, you know, I think that's going to be very difficult, given that there's still a lot of demand for store brand products in the marketplace. So we expect that to take place in the first half of 2025.
Speaker Change: So we're looking to how much can we start to doing in 2024, but.
Speaker Change: I think thats going to be very difficult given that there is a lot of demand for store brand products.
Speaker Change: In the marketplace. So we're seeing that more to take place in the first half of 2025.
Daniel Biolsi: Okay. And then one other question. Do you have any plans to reduce your inventories of benolefin ahead of a possible FDA decision, as a competitor announced?
Speaker Change: Okay and then one other question do you have any plans to reduce your inventories and phenylephrine ahead of possible FDA decision like a competitor announced.
Daniel Biolsi: Sorry, could you repeat the inventories of what? Phenolephrine. Oh. Phenolephrine.
Speaker Change: Sorry could you repeat that.
Speaker Change: The inventories are what fed intellectually panel kind of icon.
Patrick Lockwood: Yeah, No.
Speaker Change: Okay.
Speaker Change: No.
Patrick Lockwood: No, I understand what the FDA said, that it's not enforced or legal requirements, and there still continues to be demand for those products. So we continue to supply them, and no, we've not made a tactical decision to reduce that inventory whilst we continue to see good demand. And I would say that, you know, phenylephrine-based products. Regardless of what happens here, the great majority of consumers, of course, will use alternate products. And this tends to be a less profitable category for us anyway. No plans, and we see that as potentially positive as people move to different formulations.
Speaker Change: Understood with the FDA said.
Speaker Change: It's not in force or legal requirements. In this still continues to be demand for those products. So we continue to supply it and no we've not we've not made.
Speaker Change: Tactical decision to reduce that inventory was we continue to see good demand.
Speaker Change: And I would say that federal effort.
Speaker Change: <unk> products.
Speaker Change: So irrespective of what happens to the great majority of consumers of course, we'll use alternative products and.
Speaker Change: And this tends to be a less profitable category for us.
Speaker Change: So.
Speaker Change: No plans and we see it as potentially positive as people move to different formulations.
Patrick Lockwood: Okay, thank you. And then for the retailer inventory levels for cough and cold, does that require you to carry more if they're carrying less?
Speaker Change: Okay. Thank you and then for the retailer inventory levels for a cough and cold does that require you to carrying more if they're carrying less or do you think this is just sort of a onetime.
Eduardo Bezerra: Or do you think this is just sort of a one-time thing? A little reduction they've had in the last quarter or two. Yeah, we're seeing that there's more of a one-time thing.
Speaker Change: But a reduction <unk> had in the last quarter or two.
Eduardo Bezerra: Yeah, we're seeing that as more of a one-time thing, right? So I think what we're seeing is after a COVID situation and now that the industry per se has been adjusting to that, so that's getting more into normalized levels across the whole industry. And so it's going to be interesting, which on the other side means that probably for the coughing cold season, you know, depending on how these start to shape up, there'll be a need to replenish stocks, you know, in the third and fourth quarters of the year.
Speaker Change: Yes, we're seeing that as more of a onetime right. So I think what.
Speaker Change: What we're saying is after a COVID-19 situation and now that the industry per se has been adjusting that and so that's gained more into a normalized levels across the whole industry.
Speaker Change: So it is going to be interesting, which is the other side means that probably for the cough and cold season.
Speaker Change: Depending how these start to shape shape up there'll be a need to replenish stocks.
Speaker Change: The third and fourth quarter out the year.
Speaker Change: Thank you.
Operator: And that is all the questions that we have at this time. I would like to turn it back to our President and CEO, Patrick Lockwood-Taylor, for closing remarks.
Speaker Change: And that is all the questions that we have at this time I would like to turn it back to our president and CEO, Patrick with back with Taylor for closing remarks.
Patrick Lockwood: Yeah, thank you very much. Thank you for joining us today. Thank you for those questions.
Patrick Lockwood: Yes. Thank you very much. Thank you for joining us today and thank you for those questions. I know, we have a number of crews laser with you, which we look forward to suit really true for.
Speaker Change: From my Vantage point.
Speaker Change: We are on track with our key reliability and our cost saving initiatives.
Patrick Lockwood: I know we have a number of calls later with you, which we look forward to. So really, from my vantage point, I think we're on track with our key reliability and our cost saving initiatives. We are set for revenue recovery in the second half, accelerating particularly in quarter four. Earnings per share adjusted for last year's tax benefit and infant formula are a healthy plus 24% versus quarter two a year ago?
Speaker Change: We have set for revenue recovery in the second half accelerating particularly in quarter four.
Speaker Change: Earnings per share adjusted for last year's tax benefit in infant formula or a healthy plus 24% versus quarter two year ago.
Patrick Lockwood: Our U.S. store brand business is a key focus for us, and we are forecasting growth for that driven by the volume share growth we're seeing in that category and net new contract wins that are realized, as I mentioned in late 24 and 25. We are also accelerating the acquisition and development of world-class leadership and talent, which will also be a core driver for us going forward. So our business is stabilizing, and we can now turn more of our organizational capacity to accelerating more profitable growth being realized in 24 and, of course, through to 25. So net, it was a stabilizing six months for us, but now we're turned squarely back to growth. Thank you very much for joining us.
Speaker Change: Our U S store brand business is a key focus for us and we are forecasting growth of that driven by the volume share growth, we're seeing in that category.
Speaker Change: Net new contract wins that are realized as I mentioned in late 'twenty, four and 'twenty five.
Speaker Change: We are also accelerating the acquisition and development of World Class leadership, and talent, which will also be a core driver.
Speaker Change: For us going going forward.
Speaker Change: So our business is stabilizing and we can now turn more of our organizational capacity to accelerating more profitable growth being realized in 'twenty four and of course through to 25. So net it was a stabilizing six months for us but now we.
Speaker Change: Returns squarely back to growth.
Speaker Change: Thank you very much for joining us.
Operator: Thank you. And, ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.
Speaker Change: Thank you and ladies and gentlemen. This concludes today's conference call. Thank you all for participating you may now disconnect.
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