Q2 2019 Earnings Call

August 8, 2019

Good day and welcome to the Parago second quarter 2019 financial results Conference call. All participants will be in listen only mode. So you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After todays presentation, there will be an opportunity to ask questions to actually a question. You May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please note that this event is being recorded I would now like to turn the conference over to Bradley Joseph Vice President of Investor Relations. Please go ahead.

Operator: Good day, welcome to the Perrigo Q2 2019 Financial Results Conference Call. All participants will be in listen-only mode. You need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note that this event is being recorded. I would now like to turn the conference over to Bradley Joseph, Vice President of Investor Relations. Please go ahead.

Good morning, everyone and welcome to Perrigo second quarter 2019 earnings Conference call I Hope you all had a chance to review the press release, we issued earlier this morning.

Bradley Joseph: Good morning, everyone, welcome to Perrigo's Q2 2019 Earnings Conference Call. I hope you all had a chance to review the press release we issued earlier this morning. Copy of the release, along with a slide deck overview of the quarter and our guidance metrics, are available on our website at perrigo.com. Joining today's call are Murray Kessler, Perrigo's President and CEO, and Ray Silcock, Perrigo's CFO. I'd like to remind everyone that during this call, participants will make forward-looking statements. Please refer to the important information for shareholders and investors and Safe Harbor language regarding these statements in our press release issued earlier this morning. In the appendix for today's call, we've provided reconciliations for all non-GAAP financial measures. Now, I'll turn the call over to Murray.

A copy of the release along with the slide deck overview of the quarter and our guidance metrics are available on our website at Parago Dot com.

Joining todays call are Murray Kessler, Parago, as president and CEO and Ray Silcock cargo CFO .

I'd like to remind everyone that during this call participants will make forward looking statements. Please refer to the important information for shareholders and investors and Safe Harbor language regarding these statements in our press release issued earlier this morning.

In addition in the appendix for today's call. We've provided reconciliations for all non-GAAP financial measures now I'll turn the call over to Marie.

Good morning, everyone.

Murray Kessler: Good morning, everyone. For the most part, I'm pleased with the Q2 results. Importantly, I like the direction Perrigo is heading. Since we shared our strategic direction at our May 9 Investor Day. Even before then, we've been moving quickly to execute on the 40 major initiatives we discussed. Initiatives that must happen if we are to successfully transform Perrigo from a healthcare company to a consumer self-care company. While we are still in the early stages, significant progress was made during the Q2. A few examples: Strong customer service levels have been restored in our America's RX businesses. Are once again north of 90%. Our new products program is beginning to yield higher results, especially in Europe, behind the launch of XLS Forte 5 and strong performance by the OPKO brand. New products yielded $65 million in consolidated net sales during the quarter.

For the most part I'm pleased with the second quarter results and importantly, I like the direction Parago is heading.

Since we shared our strategic direction at our May 9th Investor Day, and even before then we've been moving quickly to execute on the 40 major initiatives. We discussed initiatives that must happen. If we are to successfully transform parago from a healthcare company to what consumer self care company.

Well, we are still in the early stages significant progress was made during the second quarter a few examples.

Strong customer service levels have been restored in our Americas, and Rx businesses and are once again north of 90%.

Our new products program is beginning to yield higher results, especially in Europe behind the launch of XL last four to five and strong performance by the Opco brand new products yielded 65 million and consolidated net sales during the quarter.

Third we closed on the divestiture of the animal health business for $185 million.

Murray Kessler: 3rd, we closed on the divestiture of the animal health business for $185 million. 4th, we also closed on the acquisition of Ranir, the world's leading store brand oral self-care company, and raised guidance to reflect the incremental business. Ranir will have a very positive effect on our consolidated results in the 2nd half of the year. We also completed the roadmap of our $100 million Project Momentum cost savings initiative. We'll share specific plans in the fall on this plan, which is crucial to offset the stranded costs resulting from the eventual separation of our RX business. Finally, we've incrementally improved our forecast accuracy as evidenced by making this quarter's adjusted EPS results, marking our 3rd consecutive quarter of meeting or exceeding analyst expectations. The most important is that I feel the excitement building among our employees throughout Perrigo.

Fourth we also closed on the acquisition of Renier, the world's leading store brand oral self care company and raised guidance to reflect the incremental business running or will have a very positive effect on our consolidated results in the second half of the year.

We also completed the roadmap of our 100 million dollar project momentum cost savings initiative.

Well share specific plans in the fall on on this plan, which is crucial to offset the stranded costs, resulting from the eventual separation of our Rx business.

And finally, we have incrementally improved our forecast accuracy as evidenced by making this quarter's adjusted EPS results.

Marking our third consecutive quarter of meeting or exceeding analysts' expectations.

But most important is that I feel the excitement building among our employees throughout parago.

Murray Kessler: Like me, they believe that the company is getting back on track. I'm delighted to see throughout the company a commitment to our new self-care vision and the priorities necessary to make that vision a reality. Transformations don't happen without commitment to a shared vision, we have it. This excitement and energy is beginning to show itself in business results, which I will briefly discuss. Our CFO, Ray Silcock, will provide you the specific GAAP and adjusted results, which you can also see reconciled in the earnings release. I will be speaking to the adjusted results. Adjusted net sales grew 1% for Perrigo on a consolidated basis, excluding animal health, infant foods, and currency. Consumer Self-Care America's adjusted net sales also increased almost 1% for the quarter, excluding animal health and infant foods, driven by a very strong quarter for our core OTC business.

Like me they believe that the company is getting back on track.

I am delighted to see throughout the company our commitment to our new self care vision and the priority is necessary to make that vision a reality.

Transformations don't happen without commitment to a shared vision and we have it.

This excitement and energy is beginning to show itself in business results, which I will briefly discuss our CFO Ray Silcock will provide you the specific GAAP and adjusted results, which you can also see reconciled in the earnings release, but I will be speaking to the adjusted results.

Adjusted net sales grew 1% or parago on a consolidated basis, excluding animal health and been foods and currency.

Consumer self care Americas adjusted net sales also increased almost 1% for the quarter, excluding animal health and infant foods, driven by a very strong quarter for our core LTC business.

Parago TCC sales, which represents approximately 80% of the Americas business increased a robust 4% for the quarter and volume increased nearly 6% tracing to an increase in category demand.

Murray Kessler: Perrigo OTC sales, which represents approximately 80% of the America's business, increased a robust 4% for the quarter, and volume increased nearly 6%, tracing to an increase in category demand associated with an extended cough-cold season, a good start to the allergy season, and strength in our smoking cessation and GI categories. For perspective, OTC category growth, consumption that is, rate tripled during the quarter versus a year ago from 1.1% to 3.5%. Store brand outpaced that growth, increasing 3.8%, meaning store brands once again gained share from national brands. I wasn't happy with the performance of our infant formula business for the quarter, which declined almost 15% versus a year ago.

Associated with an extended cough cold season.

A good start to the allergy season, and strengthen our smoking cessation and Gi categories.

For perspective, OTN see category growth.

Consumption that is re tripled during the quarter versus a year ago from 1.1% to 3.5%.

Storebrand outpaced that growth, increasing 3.8%, meaning store brands once again gained share from national brands.

I wasn't happy with the performance of our infant formula business for the quarter, which declined almost 15% versus a year ago.

The mask the vast majority of that decline was driven by our contract sales business, which suffered due to inventory issues. Among several of our branded cup customers that made the strategic decision.

Murray Kessler: The vast majority of that decline was driven by our contract sales business, which suffered due to inventory issues among several of our branded customers that made the strategic decision to exit infant formula. The performance was also affected by a product recall at a leading customer. Importantly, consumer demand on our store brand business has returned to near pre-recall levels. The good news here is that as contract pack inventory is correct, we would expect this business and our total nutrition business to quickly stabilize in the second half. Turning to Consumer Self-Care International. Net sales, excluding currency, declined nearly 2% versus year ago, the results there are better than they look. We had a short-term hiccup in France associated with a salesforce restructuring that was large enough to offset growth on the rest of the international business.

The exit infant formula.

The performance was also affected by a product recall at a leading customer.

But importantly, consumer demand on our store brand business has returned to near pre recall levels.

So the good news here is that as contract packed inventory is correct.

We would expect this business and our total nutrition business to quickly stabilized in the second half.

Turning to consumer self care international.

Net sales, excluding currency declined nearly 2% versus year ago, but the results there are better than they look we had a short term hiccup in France associated with the sales force restructuring that was large enough to offset growth on the rest of the international business that is excluding France and currency CSC I was up 1% and remember what I shared with you on Investor day about our purposeful exit of certain non strategic brands, representing about 4% of the business last year, well that's down to 3%. This year already so when you look at our core branded consumer product portfolio. It grew 3% for the quarter driven by nearly $30 million in new product launches. We believe the sea Sci transformation is well underway and are working to resolve their short term issues in France during the second half of the year.

Murray Kessler: That is, excluding France and currency, CSCI was up 1%. Remember what I shared with you on Investor Day about our purposeful exit of certain non-strategic brands, representing about 4% of the business last year. Well, that's down to 3% this year already. When you look at our core branded consumer products portfolio, it grew 3% for the quarter, driven by nearly $30 million in new product launches. We believe the CSCI transformation is well underway and are working to resolve the short-term issues in France during the second half of the year. Importantly, in markets with attractive growth, we continue to maintain our market share across Europe, led by our core products. Our non-core RX segment continued to also perform well and outperformed most generic RX companies, posting another quarter of top line net sales growth of more than 3%.

And importantly in markets with attractive growth, we continue to maintain our market share across Europe led by our core products.

Our noncore Rx segment continued to also performed well and outperform most generic Rx companies posting another quarter of top line net sales growth of more than 3%.

We continue to see a moderation of downward pricing pressure and the business benefited like consumer Americas from improved customer service levels.

Murray Kessler: We continue to see a moderation of downward pricing pressure, and the business benefited, like Consumer Americas, from improved customer service levels. The RX separation continues to be a strategic priority, and we continue to work on effecting a separation. Uncertainty in the market and generic pharmaceutical industry generally, right now, requires us to reevaluate timing so as to optimize value for our shareholders. Be clear, our RX business remains strong, and we believe has relatively modest exposure to the factors affecting the industry right now. We have returned this business to growth, and we expect it will deliver attractive cash flow as we work towards separation. We will keep you posted, again, to be clear, we remain committed to the separation and to transforming Perrigo into a pure-play consumer company.

The Rx separation continues to be a strategic priority and we continue to work on effecting a separation.

But uncertainty in the market and generic pharmaceutical industry generally right now requires us to reevaluate timing so as to optimize value for our shareholders be clear our Rx business remains strong and we believe as relatively modest exposure to the factors affecting the industry right. Now we have return this business to growth and we expect it will deliver attractive cash flow as we work towards separation.

We will keep you posted but again to be clear, we remain committed to the separation and the transforming parago into a pure play consumer company.

Looking forward, we have a lot to do and as I've said before the transformational takes several years, we are making good progress and I expect that progress to be more visible through accelerated net sales growth in the second half of the year as we integrate ryanair and we see more of our initiatives come to market.

Murray Kessler: Looking forward, we have a lot to do, and as I have said before, the transformation will take several years. We are making good progress, and I expect that progress to be more visible through accelerated net sales growth in the second half of the year as we integrate Ranir and we see more of our initiatives come to market. I remain excited about what we as a team are doing at Perrigo, and I am confident we will recapture the Perrigo advantage. I know we will make lives better by bringing quality, affordable self-care products that consumers trust everywhere they are sold. With that, I'll turn the call over to Ray.

I remain excited about what we as a team are doing at Parago and I am confident we will recapture the parago advantage I know, we will make lives better by bringing quality affordable self care products that consumers trust everywhere. They are sold and with that I will turn the call over to Ray.

Thank you Mary and good morning, everyone I would now like to walk through the details of the Q2 PNM balance sheet attached to this mornings press release I should note that there are also some explanatory financial charts on our website for additional clarity.

Ray Silcock: Thank you, Murray, good morning, everyone. I would now like to walk through the details of the Q2 P&L and balance sheet attached to this morning's press release. I should note that there are also some explanatory financial charts on our website for additional clarity. Moving now to our Q2 results. Consolidated reported net sales were $1.15 billion in Q2, 3% lower than for the same Q2 last year. Consolidated adjusted net sales were 1% higher in Q2 than in the same Q2 last year, after excluding adverse foreign currency movements, the animal health business held for sale in Q2 and then divested at the beginning of Q3, and the infant foods business that we exited at the end of last year.

Moving now to our second quarter results.

Consolidated reported net sales were 1.15 billion in Q2, 3% lower than for the same quarter last year.

Consolidated adjusted net sales were 1% higher in Q2 than in the same quarter last year after excluding adverse foreign currency movements. The animal health business held for sale in Q2, and then divested at the beginning of Q3 and the infant foods businesses business that we exited at the end of last year.

Consolidated reported net income for the quarter was $9 million and reported EPS was seven cents a share adjusted net income for the quarter was $117 million and adjusted EPS was 86 cents a share.

Ray Silcock: Consolidated reported net income for the quarter was $9 million, and reported EPS was $0.07 a share. Adjusted net income for the quarter was $117 million, and adjusted EPS was $0.86 a share. Total adjustments in the quarter amounted to $108 million. We had $74 million of amortization expense, primarily related to previously acquired intangible assets, and a $28 million impairment charge of a certain definite lived asset in our RX business. We also incurred $12 million in restructuring charges, primarily due to the reorganization of our sales force in France, as well as an $8 million adjustment for a combination of accounting and operational expenses, primarily related to the planned separation of the RX business, plus $3 million of other smaller adjustments. All partially offset by a $17 million non-GAAP tax adjustment.

Total adjustments in the quarter amounted to $108 million.

We had $74 million of amortization expense, primarily related to previously acquired intangible assets and a 28 million dollar impairment charge of a certain definite lived asset in our Rx business.

We also incurred $12 million in restructuring charges, primarily due to the reorganization of our sales force in France, as well as an $8 million adjustment for a combination of accounting and operational expenses, primarily related to the planned separation of the Rx business plus $3 million of other smaller adjustments, all partially offset by a $17 million non-GAAP tax adjustment.

Ray Silcock: These adjustments can be found delineated in more detail in the non-GAAP reconciliation table attached to this morning's press release. Our reported effective tax rate was unusually high for this quarter at 67%, driven by the RX impairment charge of $28 million in the quarter that was not tax-deductible. Adding this impairment charge back to our adjusted pre-tax income, increased the denominator of the adjusted tax rate formula with no change to tax expense. This was the primary reason for the reduction in our adjusted effective tax rate to 23.1%. In Q2, worldwide consumer reported net sales of $910 million, 5% lower than for the same quarter last year.

These adjustments can be found delineated in more detail in the non-GAAP reconciliation table attached to this mornings press release.

Our reported effective tax rate was unusually high for this quarter at 67% driven by the Rx impairment charge of $28 million in the quarter that was not tax deductible.

Adding this impairment charge back to our adjusted pre tax income increased the denominator of the adjusted tax rate Formula with no change to tax expense. This was the primary reason for the reduction in our adjusted effective tax rate to 23.1%.

In Q2 worldwide consumer reported net sales of $910 million, 5% lower than for the same quarter last year worldwide consumer adjusted net sales were flat as compared to the same quarter last year, excluding the impacts of adverse foreign currency movements. The held for sale animal health business and the infant foods business that we exited at the end of last year.

Ray Silcock: Worldwide consumer adjusted net sales were flat as compared to the same quarter last year, excluding the impacts of adverse foreign currency movements, the held-for-sale animal health business, and the infant foods business that we exited at the end of last year. Total new product sales of $38 million and strong volume in our core US OTC business, were more than offset by lower sales volumes in our international segment. CSCA reported net sales of $582 million in Q2, down 2.5% from the prior year. Adjusted net sales for Q2 were $559 million, 1% higher than for the same period last year, when the held-for-sale animal health business and the infant foods business that we exited are excluded.

Total new product sales of $38 million and strong volume in our core us LTC business were more than offset by lower sales volumes in our international segment.

CSC reported net sales of 582 million in Q2 down 2.5% from the prior year adjusted net sales for Q2 were $559 million, 1% higher than for the same period last year when the held for sale animal health business and the infant foods business that we exited are excluded net sales from our market, leading us LTC business increased by more than 4% compared to the same quarter. Prior year, but these increases were partially offset by lower sales of infant formula.

Ray Silcock: Net sales from our market-leading US OTC business increased by more than 4% compared to the same quarter prior year. These increases were partially offset by lower sales of infant formula. International reported net sales of $328 million in the quarter, 8.5% lower than for the same quarter last year. Excluding adverse currency movements, sales were down 1.8% from Q2 last year. Strong new product sales of $30 million were more than offset by the impact of discontinued products, lower sales in certain categories, and in France. Lower sales in France were primarily due to a lack of sales coverage there, as a realignment of the sales force, part of a number of business optimization initiatives underway in CSCI, as we seek to increase productivity and achieve better profitability, resulted in temporary business disruption.

International reported net sales of $328 million in the quarter, 8.5% lower than for the same quarter last year.

Excluding adverse currency movements sales were down 1.8% from Q2 last year strong new product sales of $30 million were more than offset by the impact of content discontinue products lower sales in certain categories and in France lower sales in France were primarily due to a lack of sales coverage there as a realignment of the sales force part of a number of business optimization initiatives underway in CSC as we seek to increase productivity and achieve better profitability resulted in temporary business disruption.

In realigning the sales force we offered early retirement packages to help US condense three sales forces into one to improve the efficiency and effectiveness more French sales employees took early retirement than had been anticipated, resulting in a reduction of sales effectiveness in the quarter. We expect this disruption to be remedied by year end as we hire train and deploy new salespeople.

Ray Silcock: In realigning the sales force, we offered early retirement packages to help us condense three sales forces into one, to improve efficiency and effectiveness. More French sales employees took early retirement than had been anticipated, resulting in a reduction of sales effectiveness in the quarter. We expect this disruption to be remedied by year-end as we hire, train, and deploy new salespeople. When the year-over-year decrease in net sales in France is excluded, in addition to the effect of currency movements, CSCI net sales would have grown 1% in the quarter. Moving on to gross profits. In Q2, worldwide consumer had adjusted gross profit of $366 million, down $42 million from the same quarter last year. Excluding businesses held for sale and adjusting for the impact of currency, Q2 adjusted gross profit was down 3% from Q2 last year.

When the year over year decrease in net sales in France is excluded in addition to the effect of currency movements CSC net sales would have grown 1% in the quarter.

Moving on to gross profits in Q2 worldwide consumer had adjusted gross profit of $366 million down $42 million from the same quarter last year.

Excluding businesses held for sale and adjusting for the impact of currency second quarter. Adjusted gross profit was down 3% from Q2 last year.

In the Americas segment, adjusted gross profit was $190 million down 10.7% compared to the same quarter last year. This decline. This decline was principally due to lower infant formula contract manufacturing as well as operational inefficiencies, resulting from higher scrap and some raw material price inflation.

Ray Silcock: In the Americas segment, adjusted gross profit was $190 million, down 10.7% compared to the same quarter last year. This decline was principally due to lower infant formula contract manufacturing, as well as operational inefficiencies resulting from higher scrap and some raw material price inflation. These were partially offset by improved business performance within the US OTC business and by new product introductions. Sequentially, compared to our Q1, Americas adjusted gross profit margin increased 150 basis points to 34%, primarily due to favorable product mix and higher volumes in our OTC category. In the International segment, adjusted gross profit was $179 million, down 10.1% compared to the same quarter last year.

These were partially offset by improved business performance within the U.S. ODC business and by new product introductions.

Sequentially compared to our first quarter Americas adjusted gross profit margin increased 150 basis points to 34%, primarily due to favorable product mix and higher volumes and ROTC category.

In the International segment adjusted gross profit was $179 million down 10.1% compared to the same quarter last year on a constant currency basis. Adjusted gross profit was down 3.7% compared to prior year, primarily as a result of adverse product mix and the impact from that sales force realignment in France, partially offset by successful new products as we continue to reap the benefits of a healthy new product pipeline.

Ray Silcock: On a constant currency basis, adjusted gross profit was down 3.7% compared to prior year, primarily as a result of adverse product mix and the impact from that sales force realignment in France, partially offset by successful new products, as we continue to reap the benefits of a healthy new product pipeline. Continuing on down the P&L, worldwide consumer adjusted operating expenses were flat to last year. Excluding the impact of currency and held-for-sale business, adjusted operating expenses were up 8% as a result of, one, a 13.5% increase in R&D investments compared to prior year. Two, performance-based compensation plan accruals being returned to 100%. Three, the absence of a one-time insurance recovery that benefited the Q2 last year. Moving on to adjusted operating margin.

Continuing on down the piano worldwide consumer adjusted operating expenses were flat to last year, excluding the impact of currency and held for sale business. Adjusted operating expenses were up 8% as a result of 113.5% increase in R&D investments compared to prior year to performance based compensation plan accruals being returned a 100% and three the absence of a onetime insurance recovery the benefited the second quarter last year.

Moving onto adjusted operating margin worldwide consumer adjusted operating income in Q2 amounted to $118 million down from $161 million last year, and adjusted operating margin of 13.3% versus 16.8% in the prior year.

Ray Silcock: Worldwide consumer adjusted operating income in Q2 amounted to $118 million, down from $161 million last year, an adjusted operating margin of 13.3% versus 16.8% in the prior year. CSCA's adjusted operating margin of 20.3% was down 140 basis points from Q2 last year, with lower SG&A expenses being partially offset by increased R&D spending when the $50 million upfront license fee for Nasonex, which was charged to R&D in Q2 last year, is excluded. Sequentially, the Americas adjusted operating margin was up 200 basis points from prior quarter due to gross profit flow through and lower SG&A expenses. In the international segment, adjusted operating margin was stable at 15.3% versus 15.6% last year and 15.4% in this year's Q1.

CSC A's adjusted operating of 20 operating margin of 20.3% was down 140 basis points from Q2 last year with lower SGN, a expenses being partially offset by increased R&D spending.

When the $50 million upfront license fee fund these index, which was charged to R&D in Q2 last year is excluded sequentially. The Americas adjusted operating margin was up 200 basis points from prior quarter due to gross profit flow through and lower SGN a expenses.

In the International segment adjusted operating margin was stable at 15.3% versus 15.6% last year and 15.4% in this years first quarter.

Turning now to the Rx segment net sales for the quarter with $239 million, 3.4% higher as compared to prior year.

Ray Silcock: Turning now to the RX segment. Net sales for the Q2 were $239 million, 3.4% higher as compared to prior year. New product sales of $27 million and improved customer service were partially offset by continued, although moderating, downward pricing pressure, and by the impact of discontinued products. Adjusted gross profit of $100 million in the Q2 was $16 million lower than in Q2 last year, primarily due to the continued downward pricing pressure and a less favorable product mix, including higher volumes this year of relatively lower margin authorized generic products. RX adjusted operating income of $66 million was down $13 million compared to last year, as the gross margin shortfall was partially offset by lower administrative expenses as compared to the prior year. R&D expenses were at a similar level to that of last year.

New product sales of $27 million and improved customer service were partially offset by continued over the motor racing downward pricing pressure pressure and by the impact of discontinued products.

Adjusted gross profit of $100 million in the quarter was $16 million lower than in Q2 last year, primarily due to the continued downward pricing pressure and a less favorable product mix, including higher volumes. This year of relatively lower margin authorized generic products.

Rx adjusted operating income of $66 million was down 13 million compared to last year as the gross margin shortfall was partially offset by lower administrative expenses as compared to the prior year R&D expenses were at a similar level to that of last year.

In summary, Perrigo consolidated adjusted earnings per share in Q2 were 86 cents better than we had expected primarily due to improved business performance by both our Americas LTC business and the Rx segment and also as a result of timing differences versus our expectation in R&D and DMP expenditures that we now anticipate incurring in the second half of the year.

Ray Silcock: In summary, Perrigo consolidated adjusted earnings per share in Q2 were $0.86, better than we had expected, primarily due to improved business performance by both our Americas OTC business and the RX segment, also as a result of timing differences versus our expectation in R&D and A&P expenditures that we now anticipate incurring in the second half of the year. A quick comment on the balance sheet. Our working capital levels were up in Q2 as we built inventories in order to address some customer service issues, and in anticipation of plant maintenance and other needs. As a result, cash flow from operations was significantly lower than normal in Q2, with cash flow as a percent, cash flow conversion, that is, as a percent of adjusted net income at 60% for the quarter.

A quick comment on the balance sheets are working capital levels were up in the second quarter as we built inventories in order to address some customer service issues and in anticipation of plant maintenance and other needs.

As a result cash flow from operations was significantly lower than normal in Q2 with cash flow as a percent cash flow conversion that is as a percent of adjusted net income at 60% for the quarter for the balance of the year, we anticipate the cash flow conversion, including from Ryanair will return to between 90 and 97% of adjusted net income.

Ray Silcock: For the balance of the year, we anticipate that cash flow conversion, including from Ranir, will return to between 90% and 97% of adjusted net income. Following the Ranir acquisition, we are planning to refinance our existing term loan with a new $600 million facility, the proceeds of which we will use to repay our existing term loan and reduce the balance on our revolving credit facility. We expect that the refinancing will close by the end of this month, will be leverage neutral, and will lower our interest expense by $2.5 million for the balance of 2019. Turning now to guidance for the balance of the current year.

Following the Rainier acquisition, we are planning to refinance our existing term loan with a new 600 million dollar facility. The proceeds of which we will use to repay our existing term loan and reduce the balance on our revolving credit facility.

We expect that the refinancing will close by the end of this month, we'll be leverage neutral and we will lower our interest expense by two and a half million dollars for the balance of 2019.

Turning now to guidance for the balance of the current year.

Our consolidated adjusted EPS guidance is unchanged for the year in the range of 375 to four or five a share with net sales in the range of $4.75 billion to $4.85 billion.

Ray Silcock: Our consolidated adjusted EPS guidance is unchanged for the year in the range of $3.75 to $4.05 a share, with net sales in the range of $4.75 to $4.85 billion. Adjusted worldwide consumer net sales on a constant currency basis for 2019, excluding exited businesses, are expected to grow by about 5% versus last year. We anticipate this sales growth being driven primarily by the acquisition of Ranir, by better performance in our core US OTC business, and from a strong pipeline of new product launches in international. The RX business continues to perform well in spite of the challenging generic marketplace. We continue to anticipate net sales growth this year as a result of a strong new product pipeline and moderation of the downward pricing pressure on this business.

Adjusted worldwide consumer net sales on a constant currency basis were 2019, excluding exited businesses are expected to grow by about 5% versus last year.

We anticipate this sales growth being driven primarily by the acquisition of RIDEA by better performance in our core us LTC business, but from a strong pipeline of new product launches in international.

The Rx business continues to perform well in spite of the challenging generic marketplace. We continue to anticipate net sales growth. This year as a result of a strong new product pipeline and moderation of the downward pricing pressure on this business. Please bear in mind. This guidance does not include any impact in 29 team from generic Proair.

Ray Silcock: Please bear in mind, this guidance does not include any impact in 2019 from generic ProAir. Potential upsides for the balance of 2019 are the launch of generic ProAir, which, if achieved, could add as much as $0.10 per share per quarter, and incremental cost savings from Project Momentum of up to $0.05 a share. With that, I'd like to turn the call back to Murray.

Potential upsides for the balance of 2019 are the launch of generic Printwear, which if achieved could add as much as 10 cents per share per quarter and incremental cost savings from project momentum of up to five cents a share.

With that I'd like to turn the call back to Mary.

Thank you Ray.

Murray Kessler: Thank you, Ray. One last thing before we move into the Q&A. Last night, we announced that Jeff Smith has resigned from the Perrigo board. I want to thank him for his service and for his insight and passion to put Perrigo back on track. Perrigo is a better company because of his and Starboard's involvement. As you know, I would not be at Perrigo if not for Jeff. I believe, as he said himself, his leaving is to allow him to focus on other opportunities and reflects the confidence he has in the board, leadership team, and all our employees to execute on our strategic plan and build shareholder value. Operator, we'll now take questions.

One last thing before we move into the queue in a last night, we announced the Jeff Smith has resigned from the Parago Board.

I want to thank him for his service and for his insight and passion to put parago back on track.

Parago as a better company because of his and Starboards involvement and as you know I would not be at Parago, if not for Jeff I believe as he said himself is leaving us to allow him to focus on other opportunities and reflects the competency has and the board leadership team and all our employees to execute on our strategic plan and build shareholder value.

Operator, we'll now take questions.

We will now begin the question answer session.

Ray Silcock: We will now begin the question and answer session. To ask a question, you may press star, then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster.

Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster.The first question comes from Randall Stanicky with RBC Capital Markets. Please go ahead.

You asked a question you May Press Star then one on your Touchtone phone.

If you are using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then too.

At this time, we will pause momentarily to assemble our roster.

Thanks.

The first question comes from Randall Stanicky with RBC capital markets. Please go ahead.

[Analyst] (RBC Capital Markets): The first question comes from Randall Stanicky with RBC Capital Markets. Please go ahead.

Great. Thanks, guys. The question Maria the Us consumer business is the.

Randall Stanicky: Great. Thanks, guys, for the question. Murray, the US consumer business is the value driver for Perrigo, and when you look at the opportunity to drive new launch revenue higher going forward, what are the plans to do that? Or should we think about the current level, which is run rating at just north of $30 million, is the new level? Secondly, I don't wanna focus on the RX business, but just, you said if you couldn't sell it, you would spin it. Is spin still on the table? Thanks.

Value driver for for Parago, and when you look at.

The opportunity to drive new launch revenue higher.

Going forward what are the plans to do that or should we think about the current level, which is run rating at just north of 30 million as the new level and then secondly.

I don't want to focus on Europe , ECS business, but just you said if you couldn't sell it you would spend it is spins still on the table. Thanks.

Okay, well first off I mean, we're just starting on the plans on the new product and innovation plans on C. at FDA. So.

Murray Kessler: Okay. Well, first off, I mean, we're just starting on the plans on the new product and the innovation plans on CSCA. You know, you're gonna see great growth out of CSCA, largely in the second half of the year and the beginning of next year from the bolt-on of Ranir, which is exactly what I told you. It would take some time to ramp up the new product programs. Everything's on track. I like what I see in the pipeline and the development of bigger initiatives, and that'll ramp over time, and we'll continue to do bolt-ons to do that.

Well youre going to see great growth out of CFS largely in the second half of the year in the beginning of next year from the bolt on.

Of.

Linear which is exactly what I told you it would take some time to ramp up the new product programs. So everything's on track I like what I see in the pipeline and and the development of bigger initiatives and that will ramp over time, and we'll continue to do bolt on to do that it plays to a total number that I've given you that I think I get 1% to 2%.

Murray Kessler: It plays to a total number that I've given you that I think I get 1% to 2% organic growth from the core business. Bolt-ons get me up to the 3 in my 3, 5, 7 algorithm that I'm working towards to meet the results of consumer peers. As it relates to, spin is still an option on the table. We're just as committed as we always are. You know, this is a business that's a good business, that's differentiated, that doesn't have the same exposure as others, and this is a challenging time to be separating. You know, I...

Organic growth from the core business and then bolt ons get me up to the the three on my 357 algorithm that I'm I'm working toward.

To meet the results of concern repairs as it relates to.

It's been it's still an option on the table, where does have committed as we always are but you know. This is this is a business. That's a good business. Its differentiated that doesn't have the same exposure as others and this is a challenging time to to be separating so.

We need to do it because it's the right thing to do and I believe we have a little bit of time as the business has stabilized and I need to get the consumer business performing.

Murray Kessler: We need to do it because it's the right thing to do, and, you know, I believe we have a little bit of time as the business has stabilized, and I need to get the consumer business performing to where it deserves the rerate anyway, and I'm gonna maximize shareholder value. We're still committed to it. I think we spent, you know, north of $5 million in the quarter in prep, you know, getting ready and continuing the activities. You know, we're not backed off, but I have to, you know, be aware of what's going on in the marketplace.

To where it deserves the rewrite anyway, and I am going to maximize shareholder value. So.

We're still committed to it I think we spent in an north of $5 million in the quarter, and perhaps getting ready and and continuing the activities. So we're not we're not backed off but I I have to.

Be aware of what's going on in the marketplace.

Fair enough okay. Thanks Mary.

Randall Stanicky: Fair enough. Okay. Thanks, Murray.

The next question comes from Louise Chen with Cantor Fitzgerald. Please go ahead.

[Analyst] (RBC Capital Markets): The next question comes from Louise Chen with Cantor Fitzgerald. Please go ahead.

Operator: The next question comes from Louise Chen with Cantor Fitzgerald. Please go ahead.

Hi, congratulations on the quarter and thanks for taking my questions.

Operator: Hi, congratulations on the quarter, thanks for taking my questions. My first question here is on your CBD strategy. Just curious where you are with this and what type of expertise Perrigo's management brings to this opportunity. Second one is, how important e-commerce is to Perrigo, and how is your Amazon business growing? Last question here is just any color you can provide on the generic gross margin progression between Q1 and Q2. Thank you.

My first question here is on your CBD strategy, just curious where you are with theirs and what type of expertise Paragould management brings to this opportunity.

Second one call important e-commerce is to Parago and how is your Amazon business growing and then last question. Here is just any color you can provide on the generic gross margin progression between first quarter and second quarter. Thank you.

Okay, Let me make sure I have altered you had.

Murray Kessler: Okay, let me make sure I have all the. Yeah, you had the e-commerce question.

The E Commerce question.

The CBD management expertise and Ray you can ever do that you do their gross margin progression.

Ray Silcock: CBD.

Murray Kessler: CBD management expertise.

Ray Silcock: Yeah.

Murray Kessler: Ray, you can, after I do that, you do the gross margin progression. CBD management. I feel like we have a good group of people that are working on it, led by somebody who, you know, I brought into the company, who I don't know if you haven't met him yet, but is the person who worked with me at Lorillard, who basically did the same thing in breakthrough technology and something very different in the tobacco industry with vapor products and was the inventor of blu e-cigs, and that we eventually bought and went national with first and is a very innovative type person, and he is leading the charge in identifying a way to get into CBD in a Perrigo-like way. I don't wanna be the same as everybody else. It's progressing.

Liberty management.

I feel like we have a good group of people that are working on it led by somebody who unified brought into the company. So I don't know if you I haven't even madam yet, but as the person who worked with me of Lorillard, who basically did the same thing and breakthrough technology and something very different in the tobacco industry with vapor products and was a the inventor of bluebay eggs and that we eventually bought and went national with first then there is a very innovative type person and he is leading the charge and and identifying a way to get into CBD, Anna Parago like way I don't want to be the same as everybody else it's progressing.

Murray Kessler: We have, you know, I just don't wanna prematurely talk about it, but I'm not gonna get in it to be one of, you know, 200 people that are just launching a lotion and a cream. It has to be make sense when you hear about it afterwards, and you know, we'll keep you posted as we go on it. The management expertise is there for sure, because I've set that up as sort of a skunk works, new product innovation group that doesn't even sit here, at, in Allegan or Dublin. From an e-commerce standpoint, our business continues to grow. We continue to put more resources against it. We like our relationship with Amazon. We have good margins with them and a good relationship.

We have.

I, just don't want to prematurely talk about it but I'm not going to get into it to be want to.

200 people that are just launching a loads on occurring so it it has to be.

Makes sense when you hear about it afterwards and.

And we'll keep you posted as we go on it but the management expertise is there for for sure because I've set that up is sort of a skunk work for new product innovation group that doesn't even said here.

At an elegant our Dublin.

From an ecommerce standpoint, our business continues to grow we continue to put more resources against that our businesses, we like our relationship with Amazon we have.

Good margins with them and a good relationship and.

Murray Kessler: As we, you saw at the 9 May Investor Day, we have, you know, strong double-digit growth in those areas, and we have the same thing internationally. It remains an area of focus. If there's an area I'd like to do better on, is to see it more than just e-commerce, but I'd like, you know, digital's more than e-commerce. I'm pushing from a consumer perspective that we grow that even further. Ray, you wanna handle the progression on gross margin on RX?

And as we use all at the May 9th Investor Day.

We had strong double digit growth in those areas and we have the same thing.

Internationally. It remains an area of focus if there is an area I'd like to do better on is to see at more than just the e-commerce , but.

I'd like digital is more than ecommerce. So we're I'm pushing from a consumer perspective that we grow that even further and then ray you want to handle that progression on.

Gross margin on RF, yes.

Ray Silcock: Yes. Hi, Louise. The margin in Q1 in RX was 48.6%, and our margin in Q2 is 41.7%. That decline was principally driven by downward pricing pressure, plus a mix issue where we had increased sales in the authorized generics business. These authorized generics products have lower margins, but they do represent incremental sales and incremental dollar margin to the business.

Hi, Louise so they're margining margin in Q1 in the Rx was 48.6% and our margin in Q2 was 41.7% and that decline was principally driven by.

Downward pricing pressure plus.

A mix issue, where we think we had increased sales in the authorized generics.

Business and these these authorized generics products have lower margins.

But they do represent.

Incremental sales and incremental dollar margin.

To the business.

Great next question please.

[Analyst] (RBC Capital Markets): Great. Next question, please. The next question comes from Gregg Gilbert with SunTrust. Please go ahead.

Operator: Great. Next question, please. The next question comes from Gregg Gilbert with SunTrust. Please go ahead.

The next question comes from Gregg Gilbert with Suntrust. Please go ahead.

Good morning, guys. Thanks.

Murray Kessler: Morning, Greg.

Greg Fraser: Thank you. Thank you. It's actually Greg Fraser on for Gregg Gilbert. Morning, folks. On the Americas business, are you considering options for the non-core OTC products, or does it make more sense to keep those in the portfolio? The second question is, has there been any progress behind the scenes on the Ireland and US tax issues that you can comment on?

Thank you, it's Greg Fraser on for Gregg Gilbert working both on the Americas business are you considering options for the noncore LTC product or does it make more sense to keep those in the portfolio and then second question is has there been any progress behind the scenes on the Ireland.

And U.S. tax issues that you can comment on.

Okay.

Murray Kessler: Okay, I'm not sure what you're referring to as non-core...

I'm not sure what you're referring to with noncore within.

Greg Fraser: Did you mean international, Greg? No, the 20% of sales that are.

Did you mean international Greg.

Now that the 20% of sales that are now I'm talking to you know I consider nutrition as as core to our business I was this this this business has started as an LTAC business and that's the that's the heart and soul of what we do we add a bolt on a number of years back and nutrition I'd like nutrition I've highlighted it as a strategic area globally for growth I don't like having to come back a month and a half later after highlighting it as a strategic area for growth and it had a tough quarter, but it was.

Murray Kessler: Oh, no, I consider nutrition as core to our business. I was, you know, this business has started as an OTC business. That's the, you know, that's the heart and soul of what we do. We had a bolt-on a number of years back in nutrition. I like nutrition. I've highlighted it as a strategic area globally for growth. I don't like having to come back a month and a half later after highlighting it as a strategic area for growth. It had a tough quarter, it was, you know, a recall and a, you know, some contract patch issues. It's not the core business or the, you know, the core underlying consumption. No, I'm not looking at any pruning.

Our recall and.

Some contract patches edges, it's not the core business or the.

Other core underlying consumption. So no I'm not looking at at any pruning I've said I'll continue to look at the total portfolio worldwide to keep refining it take to get to self care and then we have some work to do in that area. The only new news I have on the tax front is that a.

Murray Kessler: I've said I'll continue to look at the total portfolio worldwide to keep refining it, to get to self-care, and we have some work to do in that area. The only new news I have on the tax front is that, you know, There has been filings with the courts on the judicial review, and I believe a date has been set for late April 2020. That is sort of the first time there'll be any real potential progress on that, if that date holds. They tend to sometimes get pushed back even further. That would be sort of the next milestone in the case and then however long it would take them to decide it. I guess that would be the new news in the quarter.

We had there has been filings with the courts on the judicial review and I believe a date has been set for late April of 2020.

So that is sort of the first time they'll be any real.

Potential progress on that if that date holds they tend to sometimes get pushed back even further but that would be sort of the next.

Milestone in that case, and then however, long it would take them to decide it so I guess that would be the new news in the quarter.

Thank you next caller please.

Greg Fraser: Thank you.

Murray Kessler: Next question, please.

The next question comes from David Morris.

[Analyst] (RBC Capital Markets): The next question comes from David Maris with Wells Fargo. Please go ahead.

Operator: The next question comes from David Maris with Wells Fargo. Please go ahead.

Wells Fargo. Please go ahead.

Good morning, David warning.

Murray Kessler: Good morning, David.

David Maris: Morning. Good morning, Murray. How are you? I hope you're good. Two questions. First on the generic business, just assuming that, you know, the environment for a spin out doesn't get any better just because things are so bad, are you just gonna plan to keep it in-house and run it as it is? Or are there other options that you're considering? The second is, one of the first things that you mentioned that you saw that concerned you were the customer service levels. Can you tell us about how you've addressed that so far, where you stand on it, and any metrics you can provide around the progress of that would be great. Thank you.

Good morning, Larry how are you I hope you're good two questions. So first on the generic business just assuming that that.

The environment for a spin out doesn't get any better just because things are so bad.

Are you just going to plan to keep it in house and and run it as it is or are there other other options that you're considering the second is one of the first things that you mentioned that you saw that concern to you where the customer service levels.

Can you tell us about how you address that so far where you stand on it and any metrics you can provide around the progress of that.

Would be great. Thank you.

Okay.

Murray Kessler: Okay, the first one on RX, it's not an either/or. The answer to that is yes to both of those. I am evaluating options that are creative and remember, for this spin, I need to create as much value as I possibly can and send off a very healthy RX business if it's a spin or a sale. If it was to be a spin, it has to be very healthy and so does RemainCo, and it has to be able to execute on the strategic plans. There's lots of options to do that, and one of those options is simply to slow down a little bit and collect a very stable cash flow, and I feel good about the way that business has stabilized and the new product pipeline that's come to fruition.

The first one on Rx that it's not an either or it's the answer to that is yes.

To both of those I am evaluating options that are.

Creative and and and you remember what for that this bad I need to create as much value as I, possibly can input send off a very healthy Rx business, if it's a spin or a sale, but if it was to be a spin it has to be very healthy and so does remain code and that has to be able to execute on that strategic land. There's lots of options to do that in one of those options is simply to slow down a little bit and collect a very stable cash flow and I feel good about the way that business has stabilized and the new product pipeline that's come to fruition that was a little dry.

Murray Kessler: That was a little dry, a year ago, and I think you felt it. The company was banking on generic ProAir. That didn't happen, but it expected it to happen a year ago and has. Now I'm getting the benefit of the pipeline that was supposed to come behind it, is now coming to the marketplace, and there's more behind that. I don't see a, you know, a gap in the company's ability to compete. You know, the pricing, at least for now, feels like it has, you know, the downward pricing pressure is not nearly to the extent it was on our business, which admittedly is pretty differentiated versus others. On the customer service, I tried to get some metrics in there.

A year ago, and I think you felt that the company was banking on generic proair that didnt happen, but it all it expected that to happen a year ago and has now I'm getting the benefit of the pipeline that was supposed to come behind it is now coming to the marketplace and there's more behind that so I don't I don't see a.

A gap and the company's ability to compete and the pricing at least for now feels like it has.

The downward pricing pressure is not nearly to the extent it was on.

Our business, which admittedly is pretty differentiated versus.

Others on the customer service I tried to give some metrics in there. We are I'm really pleased with the work that is going although it is up a bit manual so we have.

Murray Kessler: I'm really pleased with the work that's going, although it's a bit manual. We have strategically built inventories, which cost us some working capital during the quarter, as Ray referred to, and got ourselves back up to good customer service levels in the 90s, which was, you know, we were in the low, you know, we were in the mid 70s when I joined the company. The important part there is the conversations in our customers' offices are no longer just, what's going on with service? What's going on with service? We're back to having conversations on building the business and new products and incremental opportunities and partnerships and all the things we're supposed to be doing instead of covering for and explaining why we're not doing the most basic thing we're supposed to do well.

Strategically built inventories.

Which cost us on working capital during the quarter as as Ray referred to and got ourselves back up to good customer service levels in the Ninetys, which was.

We were in the low or we were in the mid Seventys when I joined the company. So the important part there is the conversations and our customers offices.

Are no longer just what's going on with service, what's going on with service, we're back to having conversations on building the business.

And new products and incremental opportunities and partnerships and.

All the things we're supposed to be doing instead of covering four and explaining why we're not doing the most basic thing we're supposed to do well so I I like that I'd like to not have that increased inventory be permanent. So there is a lot of work underway to systematize and.

Murray Kessler: I like that. I'd like to not have that increased inventory be permanent. There's a lot of work underway to systematize and with systems and process, that we're making great progress on to be more nimble and be able to keep those service levels without the extra working capital.

And with systems and process that we're making great progress on to be more nimble and be able to keep those service levels without the extra working capital.

Great. Thank you very much.

David Maris: Great. Thank you very much.

The next question comes from David Risinger with Morgan Stanley . Please go ahead.

[Analyst] (RBC Capital Markets): The next question comes from David Risinger with Morgan Stanley. Please go ahead.

Operator: The next question comes from David Risinger with Morgan Stanley. Please go ahead.

Good morning, David.

Murray Kessler: Good morning, David.

David Risinger: Yes, good morning. Congrats on the performance. I have questions regarding the organic revenue growth expectations. Could you just comment on... I guess first, what we should expect for second half 2019 organic sales growth, momentum ex-Ranir? Second, Murray, I believe you mentioned the longer term target is for 1% to 2% organic revenue growth. I don't specifically recall that mention at the Analyst Day. I may be wrong, because it's been a bit of a whirlwind of news flow in the last couple of weeks with respect to quarterly results. Is that 1% to 2% organic revenue growth the same as you indicated at the Analyst Day? Thank you.

Yes, good morning.

Congrats on the performance I have questions regarding the organic revenue growth expectations.

So could you just comment on.

I guess first.

What we should expect for second half 19 organic sales growth momentum ex Remy Your and then second Murray I believe you mentioned the longer term targets.

Is for 1% to 2% organic revenue growth.

I don't.

Specifically recall that mentioned at the analyst day I may be wrong.

Because it's been a bit of a war whirlwind of news flow in.

The last couple of weeks with respect to quarterly results, but is that 1% to 2% organic revenue growth. The same as you indicated at the analyst day. Thank you.

Yes. It definitely is the same as we said then.

Murray Kessler: Yeah. It definitely is the same, as we said. I would expect Ranir after the incremental, you know, just putting it pro forma into the business, it's growing at a faster rate to be an example of help accelerating the ongoing rate to 2 to 3%. That'll improve our organic performance. That's exactly what I said, and the way, frankly, the way if you sort of take out all these distractions of animal health last year or another, the way the business has been performing. In the second half of the year, we're looking for a little stronger organically, even without Ranir.

So.

I would expect or near after the incremental just putting it pro forma into the business. It's growing at a faster rate to be an example of help accelerating the the ongoing rate to 2% to 3% so that'll that'll improve our organic performance but.

That's exactly what I said in the way frankly, the way if you sort of take out all these distractions of animal health plans there another the way the business has been performing.

In the second half of the year, we're looking for a little stronger organically.

Even without RIN air but you're.

Murray Kessler: You know, you know, we're looking at, you know, 5 plus % growth in the second half of the year when you count Ranir in there and a stronger performance. By the way, we had it in the first half, too. It's just, you know, it's a complex business. I'm getting my hands around it, but infant formula deplete... Like we would've had a gangbuster quarter if infant formula was just flat. I mean, the category tripling and an extended cost subsidy, the 4% is, and 6% volume is big numbers for us in the store brand core business.

We're looking at.

Five plus percent growth in.

And the second half there when you account ryanair in their end.

And a stronger performance and by the way we had it in the first half to its just.

No. It's a complex business I'm getting my hands around it but infant formula deplete like we would have had a gang buster quarter.

If if infant formula was just flat I mean, the category tripling in an accent cost goal to 4% is and 6% volume is big numbers for us and the store brand core business.

Thank you. Thank you.

David Risinger: Thanks. Next question.

Murray Kessler: Thanks. Next question.

[Analyst] (RBC Capital Markets): Thank you. The next question comes from Ami Fadia with SVB Leerink. Please go ahead.

Murray Kessler: Thank you.

The next question comes from a mine for D with SVB Limerick. Please go ahead.

Operator: The next question comes from Ami Fadia with SVB Leerink. Please go ahead.

Hi, Good morning, this is Ami.

Ami Fadia: Hi, good morning. This is Ami. Can you give us some color?

Can you give us some color good morning.

Murray Kessler: Good morning.

Ami Fadia: Good morning. Can you give us some color around the Ranir business? Maybe some color around the composition of the $300 million+ annual revenue run rate, and what's really gonna drive growth? Do you expect it to grow, you know, high single digits this year on a year-over-year basis, and what's really gonna drive that growth? Secondly, you know, you talked about several new areas of self-care at the Analyst Day. What are some of the areas that you're exploring that could add growth over the next 12 to 18 months? Thanks.

Can you give us some color around the linear business.

Maybe some color around the composition of the 300 million plus annual revenue run rate.

And what's really going to drive.

Growth do you expect it to grow.

You know high single digits. This year on a year over year basis, and what's really going to drive that growth.

And then secondly, you talked about several new areas of.

Self care at the analyst day, what are some of the.

So do you exploring that did add growth over the next 12 to 18 months.

Thanks.

Yes, it's a big question and I I covered a lot of those in a.

Murray Kessler: Yeah, that's a big question. I covered a lot of those in the Investor Day, the second part of the question. You know, I don't really wanna use this call, but I hear the question of giving more detail on the future on Ranir. Ranir, as their historic algorithm, they've been growing in high single digit, low double digit growth for years, and that's been a combination of both organic and smaller bolt-on acquisitions for those. They're kind of the same formula that we are. I, you know, the percent that comes from each, I expect that business to continue to grow this year.

In the Investor Day, a second the second part of the question you know I don't really want to use this call, but I hear the question of giving more detail on the the future on rineer, but rineer as an as their historic algorithm theyve been growing in high single digit low double digit growth for years and that's been a combination of both organic and smaller bolt on acquisitions for those there. They are kind of the same formula that we are and I.

The percent that comes from me age I expect that business to continue to grow this year.

Murray Kessler: We've given you that within our guidance, and that's from both a combination of, you know, continuing to grow at existing customers, broadening their new product portfolio, expanding internationally. About 30% of that business is international. You know, they continue to have a robust program that, again, I talked about it on Investor Day, that I love the way they're focused on not just national brand equivalent, but national brand better, and national brand different. In the future, as it goes forward, this opens up a whole leg of growth for us, both organically and inorganically, with additional bolt-ons there as well, which is all part of the idea.

We've given you that within our guidance and that's from both a combination of continuing to grow at existing.

Customers broadening their new product port file portfolio, expanding internationally about 30% of that business is international.

They continue to have a robust.

Program that again I talked about it on Investor day, but I love the way, they're focused on not just national brand equivalent, but national brand better and National brand.

Different and in the future as it goes forward. This opens up a whole leg of growth for us both organically and inorganically with additional bolt on there as well, which is all part of the idea as it relates to our core business I gave you a opportunities of.

Murray Kessler: As it relates to our core business, you know, I gave you opportunities of, you know, despite the tougher quarter, I believe nutrition is a big opportunity for this company, and we're too narrow in our focus. I think nicotine cessation has been too focused and too tiny, and that's why I said that we had signed a technology agreement and co-development agreement on how we could use sort of the responsibility of Perrigo to work with the FDA to solve some of the problems in tobacco or bring solutions to smokers wanting to quit in a form that they like, that the FDA can get behind. That, you know, that'll take work.

Despite the tougher quarter I believe dippers nutrition as a big opportunity for this company and were too.

Narrowing our focus I think nicotine.

Cessation has been.

Two focused into tiny and that's why I said that we had signed a technology agreement and develop co development agreement on how we could use sort of the responsibility of a parago to work with the FDA to solve some other problems then.

In tobacco or bring solutions to.

Smokers and wanting to quit in a form that they like that the FDA can get behind and that you know that'll take work those aren't easy things to do but I believe that nicotine cessation is less than.

Murray Kessler: Those aren't easy things to do, but I believe that nicotine cessation is, you know, less than a couple % of a total tobacco industry number, with the entire consumer base wanting to quit. It's gotta be an opportunity for us in international, you know, the weight loss, e-commerce. There's just I think we illustrated a half a billion dollars of new products that we had put into the pipeline. We'll keep you posted as we go forward, and I think I left out Naturals as another area. There's no lacking of opportunities. There has to be strong discipline, and I continue, I'm a process guy, and I push the organization hard.

A couple of percent of our total tobacco industry number with the entire consumer base wanting to quit so it's got to be an opportunity for us and international.

The weight loss e-commerce that there's just I think weve illustrated a half a billion dollars of new products that we had put into the pipeline. So we'll keep you posted as we go forward and I think I left out naturals as an another area, but there is no lacking of opportunities there has to be strong discipline and I continue on the process Guy and I push the organization hard and as an example at this board meeting we had done the run there, but we I got approval to a comprehensive M&A strategy going forward that laid out the priorities and the funnels that we could.

Murray Kessler: As an example, at, you know, this board meeting, you know, we had done the Ranir, but I got approval to a comprehensive M&A strategy going forward that, you know, laid out the priorities and the funnels that we could, you know, go out and do these kinds of bolt-ons, but with real discipline that create shareholder value. Excellent. Next question, please.

Go out and do these kinds of bolt ons, but with real discipline that create shareholder value.

Thanks next question please.

The next question comes from Patrick Ho with Berenberg capital markets. Please go ahead.

Operator: The next question comes from Patrick Trucchio with Berenberg Capital Markets. Please go ahead.

Hi, Good morning, a quick one on generic Proair.

Patrick Trucchio: Hi, good morning. A quick one.

Murray Kessler: Hi

Patrick Trucchio: - generic ProAir. Can you tell us when we could expect an update on a potential approval on generic ProAir, and what sales assumptions are in that $0.10 per quarter estimate? On Project Momentum savings of $100 million, can you tell us if any of the drivers of the savings have changed since the Investor Day? How much of the savings are expected to be achieved in 2019? Is it possible that incremental savings beyond what you've identified over the next three years could be achieved from additional levers or additional learnings, as in, you know, for instance, with the consolidation of the supply chain in Europe and improved inventory systems in Europe?

Can you tell us when.

We could expect an update on a potential approval on generic proair and what sales assumptions are in that 10 cents per quarter estimate.

And then on project momentum savings of 100 million can you tell us if any of the drivers of the savings have changed since investor day, how much of the savings are expected to be achieved in 2019 and is it possible to incremental savings beyond what you've identified over the next three years could be achieved from additional levers or additional learnings as in.

For instance, with the consolidation of the supply chain in Europe , and improved inventory systems in Europe .

Well, let me, let me to the second half and then Ray you talked to the Proair, although we're not going to talk to the.

Murray Kessler: Well, let me do the second half. Ray, you talk to the ProAir, although we're not gonna talk to the speculate on the regulatory approval. The regulatory teams, you can talk to the numbers in a minute, Ray. You know, we believe we have an approvable product right now. There's, you know, there hopefully, you know, it could be tomorrow. I mean, you know, we believe we're close. As it relates to Project Momentum, the first phase of Project Momentum, when I stood up at 9 May, I had confidence at a first cut at it to believe from an overhead reduction that I could get to the $100 million number.

Speculate on the regulatory approval the regulatory team you can talk to that the numbers in a minute ray.

We we believe we have an approvable product right now and there's there.

Hopefully it could be.

Tomorrow M&A, we believe we're close as it relates to our project momentum. The first phase of project momentum when I stood up it may nine I had confidence that a first cut at it to believe from an overhead reduction that.

That I could get to the $100 million number now I have complete line of sight and probably the two a little bit more recognizing you don't get everything down, but I'm comfortable with that number I'm not really expecting much of any of it in 2019 will come in the fall and lay out the actual plan as were laying out the execution.

Murray Kessler: Now, I have complete line of sight and probably to a little bit more recognizing you don't get everything, but I'm comfortable with that number. I'm not really expecting much of any of it in 2019. We'll come in the fall and lay out the actual plan as we're laying out the execution now. I expect it to affect 2020 numbers and 2021 numbers. The difference in the short term versus the long term is some of them require systems to be put into place. You know, as for an example, you'd started already to talk about CSCI, you have, you know, literally in Omega, there were 35 something plus operating systems across there.

Now, but I affect expected to affect 2020 numbers in 2021 numbers.

And the difference in the short term versus the long term as some of them require systems to be put into place.

As for an example, you'd started already to talk about the FBI, but you have literally an omega.

There were multiple 35, something plus operating systems across there. So theres a whole lot of manual labor to consolidate all of that and it'll take systems work and investment.

Murray Kessler: There's a whole lot of manual labor to consolidate all of that, and it'll take systems work and investment to accomplish that, and that takes a bit longer. What I really liked is the back half of your question, is that it? The answer is no. This first phase was that we're focused on in the next year and a half was overhead related. Operating expenses, not cost of product sold or manufacturing, et cetera. Phase two for us, which we're just entering, and I have no idea the size of that number as I sit here today, is to begin to do the work in that area, and I believe there should be meaningful opportunities. This is, you know, a very complex organization with 14,000 SKUs and all that.

To accomplish that and that takes a bit longer.

What I really like the back half of your question is is that it and the answer is no. This first phase was.

That that we're focused on in the next year and a half was overhead related.

So operating expenses not cost of products sold or manufacturing et cetera. So phase two for us, which we're just entering and I have no idea the size of that month number as I sit here today is.

Is to begin to do the work in that area and I believe there should be meaningful opportunities. This is.

Very complex organization with 14000, skews and all that so we'll begin the work on SK, you optimization and manufacturing configuration and distribution configuration, but that wasnt part of the initial phase.

Murray Kessler: We'll begin the work on SKU optimization and manufacturing configuration and distribution configuration, but that wasn't part of the initial phase. Ray, you wanna answer the sort of the economics of the ProAir?

Randy you want to answer the sort of the economics of the yeah on rumor, we're expecting them 10, 10 cents a quarter as we said and.

Operator: Yeah, I mean, we're expecting $0.10 a quarter, as we said. We don't normally get into the details of what that revenue would be. Obviously it's a fairly modest amount.

Ray Silcock: Yeah, I mean, we're expecting $0.10 a quarter, as we said. We don't normally get into the details of what that revenue would be. Obviously it's a fairly modest amount.

We are normally get into the details of.

What that revenue would be.

But obviously, it's a fairly modest amount.

Great.

Murray Kessler: Great. Next question.

Next question.

Again, if you have a question. Please press Star then one.

Operator: Again, if you have a question, please press star, then one.

Last question please.

Murray Kessler: Last question, please.

This concludes our question and answer session I would like to turn the conference back over to Murray Kessler for any closing remarks. Please go ahead.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Murray Kessler for any closing remarks. Please go ahead.

Murray Kessler: I'll just leave it at thank you for your interest in Perrigo. Know the team is working hard and is excited about our future to convert the company and transform the company to a consumer self-care company. We'll be back to you next quarter. Bye.

Just.

I'll just leave it at thank you for your interest in Perrigo know, though team is working hard at it and excited about our future.

Convert their company and transform the company.

To a consumer self care company.

I'll be back to you next quarter.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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