Perrigo Company plc Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Category Trends: Consumer health consumption remains soft due to broad short-term market pressures, but Perrigo delivered share gains under the Three-S plan (Stabilize, Streamline, Strengthen).
• Three-S Plan Execution: Stabilizing U.S. OTC with sustained share gains; streamlining via supply chain reinvention (Project Energize generated $163M in gross annual savings, on track to deliver $150M-$200M by year-end); strengthening through portfolio reviews (sale of Dermacosmetics on track, reviewing Infant Formula and Oral Care).
• Financial Results: Q3 organic net sales declined 4.4%; EPS $0.80 (up $0.01 vs prior year). Year-to-date organic net sales declined 1.7%; EPS $1.97 (up 21%). Gross profit and margin impacted by lower net sales, but offset by supply chain reinvention benefits. Infant Formula scrap expense from Q2 didn't repeat, driving gross and operating margin expansion.
• Strategic Reviews: Sale of Dermacosmetics on track to close Q1 2026; active review of Infant Formula business due to slower share recovery; strategic review of Oral Care ongoing with new leadership and improved innovation process.

Segment Performance

• U.S. OTC: Despite challenging market, Perrigo continued to outperform, delivering 6 consecutive months of share gains. Over the last 13 weeks, gained volume share of 90 basis points across nearly every OTC category, including smoking cessation, allergy, and women's health.
• EU OTC: Total OTC euro consumption declined, but key brands gained dollar share for 5 consecutive months. Driven by strong brands with unique value propositions, A&P investments in innovation, and targeted activation strategies. Key brands like ellaOne, Jungle Formula, Physiomer, and Coldrex showed resilience.
• CSCI (Consumer Health): Third quarter organic net sales decreased 5.3% due to soft OTC category consumption, partially offset by share gains in key brands and new products. Year-to-date, organic net sales grew 0.7% driven by restored product supply in Pain and Sleep and growth in Healthy Lifestyle (e.g., Jungle Formula, NiQuitin), but decelerating category consumption from Q2 impacted results.
• CSCA (Consumer Self-Care): Third quarter net sales declined 3.8% with U.S. OTC growth of 0.6% (driven by share gains in 5 of 7 store brand categories and growth in contract business). Year-to-date, net sales declined 3.1% due to businesses under review (Oral Care and Infant Formula) and absence of prior year Opill launch stocking benefits. The remaining OTC business accounted for the balance.

Guidance

• 2025 Outlook: Revised organic net sales growth to -2% to -2.5% due to softer-than-expected OTC category consumption in U.S. and Europe, and slower Infant Formula share growth. Gross margin expected ~39%, operating margin ~15%, tax rate ~18.5%, EPS range $2.70-$2.80 (5%-9% growth vs 2024).
• Q4 Expectations: Global OTC expected flat to 1% organic growth; Nutrition sales down year-over-year due to lower contract volumes and prior year restocking; margins below prior year due to lower volumes and tariffs; operating expenses flat; tax rate higher than prior year Q4 (14.9% vs ~18.5% full year 2025).

Risks

• Market Pressures: Soft consumer health consumption impacting OTC sales across U.S. and Europe.
• Infant Formula Challenges: Slower share recovery than anticipated, competitive environment leading to lower-than-expected net sales contribution.
• Tariffs: Impact on margins, though mitigation efforts (pricing and manufacturing actions) are underway but may take time to fully offset.

Q: Follow-up on Infant Formula, specifically sell-out vs sell-in data and SKU velocity.

A: Eduardo notes slower store brand share recovery than expected due to competitive imported formulas; Patrick mentions new SKU velocity below expectation due to shelf space and positioning issues being addressed.

Q: CSCI business, including Women's Health supply constraints and VMS nutraceuticals deprioritization.

A: Eduardo states Women's Health supply issues resolved, VMS nutraceuticals deprioritized in favor of performing brands; soft OTC consumption broadly, but CSCI expected to pick up in Q4.

Q: Reinvestment plans given pullback in consumption and paused Infant Formula investment.

A: Patrick mentions revisiting capital allocation, prioritizing deleverage and dividend, with potential increase in organic growth investments for high-performing businesses like U.S. store brand and international branded business.

Q: Infant Formula share and 2026 outlook.

A: Patrick states current Infant Formula share ~16%, expecting 18%-20% by 2026; Eduardo discusses headwinds (foreign manufacturers growing share, idle domestic capacity) and tailwinds (strengthening innovation pipeline, brand programs) for 2026.

Q: Gross margin pressure and tariffs.

A: Eduardo confirms gross margin pressure due to sales deleverage and mix, not input costs; tariffs impact addressed through pricing and manufacturing actions, with 1/3 of impact from price and remaining from manufacturing efforts, already in flight with impact seen in Q4.