Perrigo Company plc Q1 FY2026 earnings call

Patrick discussed the progress in the 3S plan (stabilize, streamline, strengthen), noting steady progress despite challenging market environments. Stabilization efforts led to market share gains in U.S. store brand OTC and key European brands. Streamlining included divestiture of dermacosmetics business and ongoing reviews of infant formula and oral care. Operational enhancement program generated over $7 million in cost savings in Q1. Strengthening involved new category-led operating model, enhanced commercial and category leadership, and key growth initiatives like consumer-centric innovation, targeted geographic expansion, etc. Eduardo covered first quarter segment results, balance sheet, capital allocation, and 2026 outlook, including amendments to revolving credit facility, sale of dermacosmetics business, and focus on deleveraging and shareholder returns.

All net sales declined 8.3%, driven primarily by softer category consumption in the self-care segment due to reduced cough and cold incidents and retailer inventory destocking. Specialty care net sales were higher, partially offsetting the decline. Adjusted operating income in self-care was impacted by lower net sales volumes, manufacturing volume headwinds, and unfavorable mix, while specialty care benefited from lapping prior year OPU investments and favorable foreign currency. Core adjusted gross margin declined 160 basis points to 39.2% due to lower sales volumes, manufacturing volume headwinds, and leaks, partially offset by tariff recovery and favorable foreign exchange. All-in adjusted gross margin declined 340 basis points to 37.6%. Core adjusted operating margin decreased 110 basis points to 12.8%, and all-in adjusted operating margin decreased 240 basis points to 11.6%. First quarter core adjusted earnings per share was $0.40, and all-in adjusted diluted earnings per share was $0.43.

Reaffirmed 2026 outlook, with results expected to be weighted to the second half. Supported by stabilizing category consumption, lapping of prior year manufacturing volume headwinds, cost-saving initiatives, and growth drivers. First quarter was impacted by softer cough and cold incidents, retailer inventory destocking, and prior year manufacturing volume headwinds. Second half expected to see sequential improvement in demand due to stabilizing seasonal incidence of cough and cold, positive adjustment of retailer inventory levels, and benefits from growth initiatives. Consumer-centric innovation expected to contribute significantly to sales growth in second half, with approximately 60% of benefits in second half. Other drivers like distribution gains, demand generation, and geographic expansion also back half-weighted. Anticipated lower interest expense in second half due to dermacosmetics proceeds towards debt reduction.

Challenging market environments impacting results, including softer category consumption in self-care due to reduced cough and cold incidents and retailer inventory destocking. Geopolitical developments in the Middle East and their impact on consumers and cost base. Uncertainty around the impact of prior year manufacturing volume headwinds and the transitory nature of some headwinds. Risks associated with the strategic review of infant formula, including potential impacts on margins and the need to assess various options like capacity rationalization, partnership, and investment.

Q: Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you're using a speakerphone, please lift the handset first before pressing any keys. One moment for our first question. And I see our first question is from Chris Scott with JP Morgan. Please go ahead. Hi, this is Ethan on for Chris Schatz. Thanks for taking our questions. Just to start off, and you touched on this during the call, but as we think about the operating margin recovery for the core kind of non-infant formula business in the back half of this year and into 2027, can you help level set how much of this is driven by working through higher cost inventory in the near term? versus how much will require OTC volumes to rebound and normalize. And then my second question is just any updates you can offer on the infant formula strategic review and kind of latest thoughts on timing more broadly. Thank you. Hi, this is Eduardo here. Thank you for your question. So as we highlighted, you know, our operating margin, the first quarter, then as we provide our guidance, in the first half of the year would be significantly impacted by the carryover volume barriers that's impacting the first half. But also, you know, in the second half, we expect to see, you know, significant uptake on the market, right? So in terms of the recovery of consumption that we're watching very closely, given some of the dynamics going on. And so we expect margin improvement because of the different activities we have. So innovation, you know, continue the distribution gains that we have there, also amplify demand generation, as well as the opportunistic geographic expansion, and also the ramp up of the operational enhancement program that will benefit our OPEX and operating margin. So overall, you know, as we look into how we're going to see between the first half and the second half, we're going to see a very meaningful improvement on operating margin expansion because of these different factors. To your second question on the infant formula, right, so just giving a little bit of perspective, right, so the business as you saw today, you know, we had a very relatively good performance in the quarter. you know, with net sales growing about 2%, driven by higher contract manufacturing. And also, you know, the store brand and branded formula were a little bit impacted by prior year comparisons, right? So from a market standpoint, we're seeing consumption to being a store brand, you know, is likely improving versus what we had before. So the first thing to your specific question is, We're keeping track of the business. And remember, we anticipated that margins would be significantly impacted by the carryover of manufacturing variances. From the overall, you know, strategic review that we're carrying, you know, and that we started, so the review continues. We're working with our advisors to assess all available options that we talked before. between optimizing our network. And to that purpose, we've recently announced, you know, a rationalization of our capacity and one of our facilities that will help streamline the business and reduce our costs. But also we're looking to the other options in terms of partnership and investments. There's nothing, you know, more to share at this stage, and we continue with that, and we expect to provide further updates as we progress through the year. Anything further, Chris? Your line is still open. Nope. That's it. Thank you so much. Thank you. We have our next question from Susan Anderson with Canaccord Genuity. Hi. Good morning. Thanks for taking my questions. It's nice to see the volume share gains in the store brand in the U.S. I guess maybe if you could give some color on what's driving that share gain. What are you doing differently with retailers than you were doing before? And then also, I think maybe you said it was across most categories, but if you could talk about, you know, which categories you're seeing those gains across the portfolio. Thanks. Hi, Susan. This is Patrick. What's driving those share gains? So we're winning more contracts. So as you know, in 2025, I think it was about $100 million of net contract wins. Some of those are rolling out now. So we're taking a greater share of store brand contract volume. That's number one. Number two is not only do we want a greater share, we want to grow store brand share of the overall category. This basically is where we start to drive equivalence and the value proposition within consumers Frankly, using brand building marketing capability that we apply to our national brands. That grows consumer awareness and it grows household penetration of the store brand. There's two critical things. You want a greater share of store brand and you want store brand to have greater share of the marketplace. That provides a double win for us. So that's really what's growing. In terms of the, I think I understood your question, of which categories are growing. We compete in seven OTC categories. And I think in the presentation deck, we actually outlined which are growing. So we're growing share in all of them, with the exception of skin, where there was some temporary supply disruption, but it's a very small business for us. The rest, which are the major categories, we're growing our share of So allergy is up 180 basis points. Pain, 110. Digestive health is up 30 basis points. And probably the standout performance is in nicotine replacement therapy. And I heard this referred to by a competitor. We're actually seeing a 540-point volume share growth this calendar year to date. So it's broad-based and it's substantial. Okay, great. That sounds good. And then maybe if you could talk about how you're planning for cold cough in the back half of the year, I guess, should we expect that to finally return to growth, particularly as we kind of lap some easier compares from last year, calendar year, or are you, you know, kind of thinking about it being more flattish? And then, I guess, final question, just are you thinking about any pricing for the back half of the year, particularly as we're seeing maybe some more inflationary pressures now? Thanks. Thank you. On cold, I've been trying to predict cold seasons for a quarter of a century, and I get it wrong as many times as I get it right. This was an abnormally uh weak cough cold season um both in the US and many countries throughout Europe and therefore in totality the the rational uh forecast is always to take an average season if we take an average season for 26 27 that's going to be materially stronger than the season we've just been through I think that's a an entirely logical outlook and forecast um and the the Second part of your question was... Just on pricing, I guess. Yeah. We are... So, firstly, the inflationary pressures that we've seen from the Middle East have been very moderate for us, and we just manage those through sort of normal operations. But we are starting to look at pricing, depending on what happens with other commodity prices, etc., So, yes, I would say we're in active consideration of that, both in the international branded business and our store branded business across both regions. Yes. I think the important thing is just to add to that point, Susan, is, you know, in times of inflation, et cetera, you know, what we're going to be watching closely is the potential for pickup on store brand consumption, right? So, It's something that has been erratic over the past years, mainly because of the still strong, let's say, household wallet. Only the low-income consumers have been suffering the most, and usually they're the ones that tend to have a direct correlation with store brands. But if that starts to impact further, the trade-down could accelerate, and that's an opportunity that takes place,我们're ready to take advantage of that. Okay, great. Thanks so much. Good luck the rest of the year. Thank you. And we have our next question from Keith Devis with Jefferies. Hey, good morning, guys. Thanks for the question. Maybe just zooming out a little bit and just returning back to the macro picture as it pertains to consumer health. I know你called out some expectations for the second half to be better just hoping you can add more context on you know exactly what's driving that i think we're seeing you know across branded and store brand consumption be um a little softer than anticipated for longer than we would have thought and so kind of just want to double click on what's embedded in your expectations for the second half to be better and you know is it maybe better visibility into the contract wins or you know, the destocking easing, but just kind of unpacking that a little bit, I think would be helpful. Thank you. Yeah, thanks, Keith. So remember, as we highlighted during our guidance, right, so incorporate a wide range of outcomes there. So as you look into that piece, so there are four key areas that we are driving a lot of, you know, consumption opportunities. So From the innovation side, right, so we mentioned a little bit about compete portfolio as well as on the infant formula side, bringing new offerings, including one focused a lot on the key competitor in the market right now with an organic formulation. Continued distribution gains, so we continue to focus a lot on that in the marketplace with further competitive takeaways. and also the demand generation, right? So remember we talked last year, some of the examples like what we did on the life hacks and cough and cold and allergy. So we're seeing more and more, you know, retailers wanting to amplify that across their portfolio. And so we believe that's going to be a good opportunity to attract more consumers into our specific categories on store brand, as well as the geographical expansion on our priority variants. Right, so, but again, we acknowledge the recent developments, right, so we acknowledge some retail stocking that took place in the first quarter. We believe that this mainly related to the soft cough and cold, you know, that, you know, they wanted to be more pragmatic on managing their cash in that sense and adjusted their inventory levels, but that's something我们 need to track closely. And the other thing as well is to what extent, you know, the Middle East geopolitical situation could further evolve into inflation and how could that impact consumption in second half. So we still believe there will be a recovery because of the comparison last year was a significant decline, but we're watching that closely. I don't know, Patrick, anything you wanted to add as well? Yeah, I think that's right. I mean, fundamentally, there's not been a big shift in in incidents across categories. Household penetration is quite stable. Often one, for us, one small segment in an area of pain that consumers are moving to alternate forms in pain from solid pill to creams, et cetera. So no radical change in incidents or household penetration. Plus, as we explained, the effects last year started to be seen in quarter two. So we're very soon lapping the beginning of that category contraction. And therefore, just as a function of the math, it just stabilizes itself. There hasn't been a dramatic extraction of value that we can see that's going to continue into the remainder of the year. So again, though, the critical point, this is always going to be quite an unpredictable range this year. So we constructed guidance with a broad range of outcomes. You've seen what our sales guidance is for the year. And你heard last quarter how much of our demand generation activity and cost saving activity is weighted into the second half. That helps insulate our outlook. So at the moment, we're confidently reaffirming our 26 guidance. Okay, got it. Thank you. I'll pass it on. Thank you. We have our next question from Daniel Bolsey with Hedgeye. Good morning. I was wondering if you could speak to the consumer's purchasing behavior in-store versus online for branded versus store-label products and self-care categories. Do you think there's a notable difference with your largest customers? Are they doing a good job of highlighting store-label alternatives in their searches? Because when I look at the largest retailers, There's quite a big difference between them when I search for Advil versus ibuprofen, for example. Good question. Some of our higher shares in store brand do tend to be on e-commerce, interestingly. I think collectively we can do a better job on store brand representation on e-commerce with some of our big traditional retailers. in terms of landing pages, as you've just said, but also on some of the advertisers. As you know, they're buyer equivalents, and they can be of much better value at a time when more and more consumers are seeking value. I think that execution can be stronger. But, so yeah, I think with traditional e-commerce players playing, doing it better, enjoy higher shares, actually seeing more and more competitive takeaway within that channel as well. Yeah, and Daniel, just to give你 an important example, like in women's health in OPL, right, in Q1, e-commerce grew like almost 30%. So, you know, that's an area where it's going very, very well. You know, so we're seeing,你know, a very good uptake,你know, while,你know, the sales on OPL were double-digit growth of plus 12%. So你see how你know, e-commerce is taking a very important piece of that growth. Great, thank you. And then, can you share what the board's thoughts are on the dividend currently? Sorry, could you repeat that? Oh, yeah. So,你know, as we talked the last quarter, we continue with our capital allocation plans, right, continue to invest into our base business as well as focusing a lot on debt reduction as well and keeping our shareholders return. So we're going to keep that same focus going forward and the board will continue to assess that on a quarterly basis. What's our position to make sure we optimize our capital allocation. And they decided to keep that, and we're going to continue to have those discussions for the remaining of the year. Thank you. And thank you. There are no further questions at this time. I will now turn the call over to Patrick Lockwood-Taylor for closing remarks. Thank you very much. And again, thank you everyone for joining me. So to close, I want to put this quarter into clear perspective. The work we've done over the past several years is driving meaningful change at Paribas. We are a more focused, disciplined, and consistent business, and that stronger foundation is enabling us to manage through a challenging environment more effectively than we could have done in the past. We are delivering on our promises. We completed the Dermacosmetic Divestiture and are applying those proceeds towards debt reductions. We are executing our cost-saving program in line with slightly ahead of expectation. We are simplifying our portfolio, strengthening our operations, including continued progress in infant formula. At the same time, we are delivering material share gains, reinforcing that our commercial strategy is working. But this is not a perfect quarter. Softer cost and cold demand, inventory destocking, and European consumption pressures weighed on us all. But importantly, our improved operating capabilities enabled us to mitigate those pressures and capitalize on opportunities where they emerged, as demonstrated by the fact that both EPS and our share gains were ahead of our expectation. As we have moved into the second quarter, we're also encouraged by the continued momentum in market share and in market execution that we're seeing across the portfolio. That progress gives us growing confidence as we move through the year and reinforces our conviction in our 2026 outlook and long-term trajectory. We remain focused on disciplined execution, controlling what we can, and building enduring value over time. Thank you very much for your continued interest and support. Thank you, ladies and gentlemen. This concludes today's conference. We thank you for your participation. You may now disconnect.