Perrigo Company plc (PRGO) Earnings

Management highlights

Leadership Transition and Governance - Albert Manzone, former board member since 2022 with 3+ decades of consumer business experience, has been appointed Interim President and CEO, with a priority to rebuild investor confidence and deliver consistent execution. - The board was strengthened with two new directors with deep consumer and operational expertise to guide the value creation agenda. 3S Plan Progress - Stabilize: U.S. service levels improved 1600 basis points to 91%, and international service levels improved 1000 basis points to 95%, strengthening customer relationships and supporting market share gains. - Streamline: Since 2024, portfolio divestitures have generated $600 million in proceeds, almost all applied to debt reduction, including the Q2 2026 sale of Deverma Cosmetics for $359 million. The operational enhancement program remains on track to deliver $80-$100 million in annual cost savings by 2027. Strategic reviews of the infant formula and oral care segments are ongoing, evaluating optimization, partnerships, or divestiture to enhance shareholder value; operational improvements have already been implemented to strengthen both businesses regardless of outcome. - Strengthen: A new category-led operating model has grown the value of the innovation pipeline to more than 3x its 2024 size, with over 55% of projects now leveraging shared scalable platforms to improve investment efficiency. Market and Operational Performance - Overall category consumption remains below historical averages but improved sequentially through Q2, with this positive momentum continuing into Q3 2026. U.S. OTC category volumes turned positive in the four weeks ending July 19, with softness concentrated in seasonal categories (cough, cold, pain, allergy) driven by lower seasonal illness and tough year-over-year comparisons, which management views as temporary. - Parigo gained 50 basis points of market share in both the U.S. (where store brand OTC volumes grew 1.5% despite a 1.1% category volume decline) and Europe (where key brands grew 3.3% despite a 0.6% category value decline). - Core net sales declined 3.1% YoY, all-in net sales declined 3.2% YoY. Core adjusted EPS was $0.46, all-in adjusted EPS was $0.50, beating management expectations driven by one-time cost benefits. - Balance sheet: After applying Deverma sale proceeds to debt reduction, total debt stands at $3.3 billion with $400 million in cash and cash equivalents. Long-term Strategic Priorities - Sustain market share growth by expanding access to affordable quality self-care, growing the under-penetrated U.S. store brand OTC category through retail partnerships, and investing behind leading European branded positions. - Continue simplifying the portfolio, strengthening the balance sheet, and maintaining disciplined capital allocation, with regular reviews of capital uses (growth investment, debt reduction, shareholder returns including quarterly dividend assessments). The core priority remains delivering 2026 commitments and positioning for sustainable long-term growth.

Guidance

- Management is maintaining the full-year 2026 outlook for core and all-in net sales, adjusted operating margin, and adjusted earnings per share, reaffirming expectations that full-year results will be heavily weighted toward the second half of 2026. - The estimated full-year 2026 effective tax rate has been lowered from 20% to 18%, and the estimated full-year diluted share count has been updated to 139.3 million shares; all other guidance assumptions remain unchanged. - Planned under-absorption from lower prior-year sales volumes is expected to have a total $0.60 per share unfavorable impact on full-year 2026 all-in adjusted EPS, with $0.26 of the impact recognized in Q1 and $0.18 recognized in Q2. - Second-half earnings growth is expected to be driven by growing contributions from innovation, distribution gains and demand generation, sequential improvement in category trends, normalization of seasonal trends versus weak prior-year performance, partial reduction of plant under-absorption, operational enhancement program cost savings, and lower interest expense from Q2 debt reduction. These positive drivers will be partially offset by higher planned A&P investment to support new launches and innovation, normalization of incentive compensation versus the prior year, and the absence of Q2 one-time benefits (CEO transition cost savings, tariff recovery).

Segment performance

1. Self-care: All-in operating income declined $15 million (16.2%) year-over-year, pressured by lower sales volumes, plant under-absorption, unfavorable product mix, European retailer inventory reductions, and a delayed summer seasonal start. This segment makes up the majority of Parigo's core sales, which declined 3.1% YoY overall. Despite headwinds, the segment gained 50 basis points of market share in both the U.S. and Europe. Revenue contribution: ~60% of total net sales. 2. Specialty care: Net sales declined modestly, with operating income decreasing $18 million (~28%) YoY. Weakness stemmed from slower summer seasonal demand, lower store brand minoxidil sales, retailer destocking, and increased A&P investment for upcoming growth initiatives. Strong growth was reported in women's health products (Opile, LL1) driven by strong consumer engagement and expanded European distribution. Revenue contribution: ~25% of total net sales. 3. Infant formula: Net sales grew 23% YoY, with operating income improving by approximately $60 million YoY. Improvements came from capacity rationalization, efficiency gains, stabilization of operations, and lapping elevated production scrap from the prior year. These gains more than offset plant under-absorption from lower year-over-year sales volumes. Revenue contribution: ~10% of total net sales. 4. All other/Non-reportable: Operating income was flat year-over-year. A recovery of previously paid tariffs ($10 million one-time benefit) and improved oral care profitability offset the impact of the Deverma Cosmetics divestiture completed in the quarter. Corporate operating expenses declined YoY due to cost savings and a $6 million one-time benefit from the CEO transition. Revenue contribution: ~5% of total net sales.

Risks & headwinds

- Uncertainty surrounding consumer demand and macroeconomic conditions, particularly continued consumer weakness in Europe, could pressure top-line and bottom-line results. - Persistent softness in seasonal self-care categories (cough, cold, allergy, pain) driven by lower seasonal illness and tough year-over-year comparisons could continue to pressure near-term results, though management views this softness as temporary. - Ongoing retailer destocking, particularly in Europe, negatively impacted Q2 net sales by approximately 1.8%, and while management expects this dynamic to subside in the second half, it could create continued near-term pressure if it persists. - The outcomes of the ongoing strategic reviews for infant formula and oral care are uncertain, with no finalized timeline for announcements or updates available to investors.

Analyst Q&A

• Q: What is the progress and timing for updates on the infant formula strategic review, and what are management's core views on 2027 earnings drivers and areas of confidence/uncertainty?

  A: The strategic review is proceeding as planned, with updates to be provided as soon as there is finalized information to share. Management confirmed the 3S strategy is working, as evidenced by consistent market share gains, and is doubling down on the shared platform innovation model, which improves ROI by supporting both store brand and branded products across price points. Management remains cautious on overall consumer demand but is confident in improved service levels creating opportunities to grow share and the overall OTC category with retail partners, with new demand generation initiatives set to launch in the second half.

• Q: Is the expanded store brand demand generation and marketing strategy rolling out across categories beyond the initial allergy segment, and have you seen similar positive consumer response?

  A: The expanded demand generation strategy, implemented in partnership with retail customers, is being rolled out across all U.S. store brand categories. Retailers have shown strong enthusiasm for the approach, which focuses on both growing share and expanding the overall store brand OTC category. The strategy has already delivered additional share gains: Parigo gained an extra 60 basis points of U.S. market share in the four weeks ending July 19, following the 50 basis point gain recorded in Q2 overall.

• Q: What factors are driving the recent improvement in overall OTC category performance, and how is Parigo positioned for the ongoing channel shift from brick-and-mortar to e-commerce?

  A: The recent category improvement is driven mainly by a normalization of seasonal trends after unusually low seasonal illness earlier in the year, plus an acceleration of innovation from Parigo's new shared platform model, which delivers more scalable new products across both U.S. store brands and European branded lines. Parigo's product portfolio is well-suited for e-commerce, and the company is growing share in the channel faster than in brick-and-mortar in both the U.S. and Europe. Major e-commerce platforms are actively partnering with Parigo to co-develop new products, creating meaningful growth opportunities.