Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Perrigo Co PLC (PRGO, Financial) has made significant progress in strengthening its infant formula business, with production volumes returning to prior year levels.
- The company has executed key cost savings and efficiency initiatives, including Project Energize, which achieved $53 million in gross savings in the first half of the year.
- Perrigo Co PLC (PRGO) has seen meaningful margin improvement, with gross and operating margins expanding 190 and 160 basis points year-over-year, respectively.
- The company's global branded portfolio continues to perform well, with strong growth in key brands such as Compeed, ellaOne, and Paranix.
- Perrigo Co PLC (PRGO) remains confident in its ability to deliver on its full year EPS outlook, reaffirming its adjusted earnings per share outlook of $2.50 to $2.65.
Negative Points
- Organic net sales declined 9.1% in the second quarter, impacted by a 7 percentage point decline from infant formula and a 4 percentage point decline from lower sales in the upper respiratory and pain and sleep aid categories.
- The company faced challenges in the infant formula regulatory environment in the US, impacting organic net sales by 5.3 percentage points and earnings per share by $0.43 versus the prior year.
- Perrigo Co PLC (PRGO) experienced lower seasonal demand and net changes in inventory levels at US retail customers, leading to a 2.5 percentage point unfavorable impact on its 2024 net sales outlook.
- The company tactically walked away from a portion of its US store brand business that was becoming too dilutive to margins, resulting in a 1.5 percentage point headwind to its 2024 net sales outlook.
- Organic net sales in the CSCA segment declined 15%, driven by a 10.8 percentage point decline from infant formula and a 4.4 percentage point decline from the upper respiratory and pain and sleep aid categories.
Q & A Highlights
Q: Can you elaborate on the lost customer and its impact on the CSCA segment?
A: Patrick Lockwood-Taylor, President and CEO: This was a margin-dilutive business with one customer and several molecules of subcategories. We tactically walked away from it to improve margin expansion. We have a net gain in contracts won this year, which will start to contribute revenue in late Q4 and more predominantly in 2025. The new business is more margin accretive.
Q: How confident are you that the remediation in the nutritional business is complete and successful?
A: Patrick Lockwood-Taylor, President and CEO: The remediation work has been executed extremely well across the three sites, and all key performance indicators show full quality compliance. We are now in normal manufacturing operations with a much more quality-compliant process.
Q: Can you confirm the main drivers behind the guidance reduction?
A: Eduardo Bezerra, CFO: The 4 percentage points reduction in our full-year guidance is due to 2.5 percentage points from lower global seasonal demand for cough and cold and US retailer destocking, and 1.5 percentage points from lower distribution in the US store brand.
Q: What are the expectations for 2025 given the current top-line impacts?
A: Eduardo Bezerra, CFO: We expect a significant portion of the impact from the first half of 2024 to be recovered in 2025, benefiting from price increases in 2023. The upcoming cough and cold season and Opill's performance will also be key factors.
Q: Can you provide color on the sell-in versus sell-out differential for Opill?
A: Patrick Lockwood-Taylor, President and CEO: We are seeing very good sell-in and distribution. About 30-40% of sales are on e-commerce, with significant opportunities in insurance support and retail execution. We are learning and refining our model to enhance marketing execution.
Q: Did you lose any shelf space for infant formula, and when do you plan to build safety stock?
A: Eduardo Bezerra, CFO: We plan to build safety stock more in the first half of 2025. Currently, there is still a lot of demand for store brand products, so it will be challenging to build safety stock in 2024.
Q: Do you have plans to reduce inventories of phenylephrine ahead of a possible FDA decision?
A: Patrick Lockwood-Taylor, President and CEO: No, we continue to supply phenylephrine-based products as there is still demand. We see it as potentially positive if consumers move to different formulations.
Q: Does the reduction in retailer inventory levels for cough and cold require you to carry more inventory?
A: Eduardo Bezerra, CFO: We see the reduction as more of a one-time adjustment post-COVID. There may be a need to replenish stocks in the third and fourth quarters of the year, depending on the upcoming cough and cold season.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
