Good morning and welcome to the Perrigo First Quarter 2023 Financial Results Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Brad Joseph, Vice President of Investor Relations and Corporate Communications. Please go ahead.

Thank you, Anthony. Good morning, everyone, and welcome to Perrigo’s first quarter 2023 earnings conference call. I hope you all had a chance to review our release we issued this morning. A copy of the earnings release and presentation for today’s discussion are available within the Investors section of the perrigo.com website. Joining today’s call are President and CEO, Murray Kessler and CFO, Eduardo Bezerra. I’d like to remind everyone that during this call, participants will make certain 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. A few quick items before we start. First, unless stated, all financial results discussed and presented are on a continuing operations basis. They do not include any contributions from the divested Rx business, which was accounted for as discontinued operations prior to its sale. Second, organic growth excludes acquisitions, divestitures, and currency in both comparable periods. All comments related to constant currency remove the impact of currency translation versus the prior year by applying the exchange rates used in the comparable measurements in the prior year's financial statements. And third, Murray’s discussion will focus solely on non-GAAP results, except as otherwise expressly noted. See the appendix for additional details and for reconciliations of all non-GAAP financial measures presented. And lastly, I want to share my deep appreciation for Murray during his tenure at Perrigo and a warm congratulations on his retirement. Murray, your mentorship and leadership have been invaluable and you have set this company on a path for long-term success. On behalf of shareholders, thank you. Now for the last time, it is my pleasure to turn the call over to Murray. And with that, I'd like to turn the call over to Murray.

Thank you, Brad, and thank you, everyone, for joining us this morning. Many of you likely attended the virtual investor day we hosted at the end of February where we provided details of the next phase of our strategy, what we are calling optimize and accelerate. This was my second investor day since joining Perrigo and I believe this was a critically important event for our company. My team shared specifics on how we expect to generate a significant amount of value for shareholders and the feedback we’ve received has been overwhelmingly positive. Now after four years of transforming Perrigo into a consumer self-care company, the management team is focused squarely on operational execution and consistent delivery of results. To that end we made meaningful progress on many of the initiatives discussed at investor day during the first quarter of 2023. We’re on track with the integration for the HRA and Gateway Good Start brand acquisitions and are already realizing significant benefits from both. We are progressing faster than I expected on supply chain reinvention and have seen some exciting results in the early stages, more on this in just a moment. And I’m proud to say that Perrigo’s women’s health team is starting its presentations at the FDA advisory committee today for a potential first-in-class Rx-to-OTC switch of the Opill oral contraceptive. Underpinning the progress across our strategic initiatives are our strong financial results and business fundamentals. To echo comments from my general managers at our quarterly business reviews, after two years of unprecedented volatility we are seeing our business become more consistent and predictable again. That predictability manifested itself in the first quarter where Perrigo achieved double-digit growth on both top and bottom lines, meaningful growth and margin expansion driven by both the base business and acquisitions, and retained to grow market share as global consumer demand and fundamentals remain strong. We also announced within the last two weeks the successful elimination of the largest remaining tax overhang on the company by resolving the entire April 2019, Athena tax assessment of $843 million. No payment was required, and this assessment is now completely dismissed. We also just settled the interest rate tax assessment with the IRS. I have now cleared the desk and dramatically reduced uncertainty in the Perrigo investment thesis. As I just touched on, benefits from recent acquisitions are not only turbocharging our financial results but are also creating greater leverage across the Perrigo portfolio. In HRA, we are delivering on our revised higher synergy targets. We remain on track with the HRA distributor conversion into Perrigo's direct sales model, which will deliver significant ongoing cost savings once complete. As I discussed on previous conference calls, there is an approximate $32 million one-time impact to operating income in 2023 associated with returning inventory from distributors. Of this annual estimate, $12 million top line and $0.05 in EPS impacted the first quarter as expected. Importantly, we're realizing greater leverage on our legacy CCSI business as our sales force is now able to combine strong pan-European brands such as Compeed and ellaOne with Perrigo's existing more regional European brand portfolio. The integration of the Gateway infant formula facility and the GoodStart brand is also on track. We are progressing on insourcing transition services currently provided by Nestlé, and despite a voluntary recall in the quarter, we're continuing to leverage increased capacity from this facility to provide much-needed supply of value-based infant formulas. More on infant formula in a few minutes. Within our supply chain reinvention initiative, we are on track to remove complexity from our operations through our winning portfolio strategy, which will result in the optimization or standardization of nearly 1,000 SKUs by the beginning of 2024. We had positive conversations with customers at last week's National Association of Chain Drug Stores, NACDS, conference and look forward to partnering with them to increase customer service levels through increased operating efficiencies that will free up much-needed capacity in the Perrigo manufacturing system. We also completed a pilot program using a system called the Redzone, which will be an integral part of our enhanced Perrigo work system. The Redzone is a cost-effective software solution to provide real-time overall equipment effectiveness, OEE. It provides management and monitoring information at the line operating level. We piloted the system on three manufacturing lines across the globe in Q1. All three achieved increased productivity above our expectations and at a lower-than-expected cost. These are truly exciting results, and we've begun the process of rolling Redzone out across all our global manufacturing sites. As I mentioned earlier, the FDA Advisory Committee meeting begins today to discuss the potential switch of Opill. This is an important day for all women and people in the U.S., and it epitomizes our commitment to the women's health space. The FDA's approval of Opill OTC would increase access to safe and effective birth control while allowing women to take control of their contraceptive needs on their terms. While the FDA will be scrutinizing this application, there are over 35 independent organizations voicing support for Opill. In the year 2023, women should have ready access to oral contraception. As a reminder, the FDA Advisory Panel vote is non-binding. We expect the agency to render a decision on approval later this year. Looking at our Q1 financial results, we had a tremendous quarter as constant currency net sales grew 13%. Organic net sales grew 6.4%, despite unfavorable impacts of 2.7 and 1.3 percentage points from two voluntary recalls and portfolio optimization initiatives in CSCI, respectively. Pricing in the quarter was 5.5%, and importantly, volume grew 1%. Gross margin improved by 400 basis points, with nearly half driven by the legacy Perrigo business and the other half attributed to higher margin acquisitions. Year-over-year adjusted diluted EPS grew an impressive 36%, or plus 47% on a constant currency basis. Success in the quarter was broad-based. While global consumer demand remained solid, European consumption is robust and is at a four-year high, driven in part by a very strong cold season. Our Compeed brand continues to see strong demand and share gains, with consumer takeaway up 19% versus a year ago in the quarter. Other areas, such as anti-parasites and insect repellents, are gaining market share in growing categories and were positive drivers of CSCI growth. In the U.S., our oral care business is continuing to recover from the logistics and supply chain dynamics experienced last year, and sales and consumption trends are very positive. Oral care consumption grew a robust 20% in the quarter, and Perrigo recaptured the number two market share position in the categories we compete in. In U.S. OTC, we gained share in higher margin digestive health and NRT categories, driven by new products and distribution gains. Of note, U.S. OTC organic growth in the quarter was up 7.3% versus a year ago, and U.S. OTC gross margin was 30%, up 415 basis points. Looking at our top line in a bit more detail, we achieved strong growth in both segments and nearly every product category. Many of our investors are U.S. based, so they gravitate towards the U.S. business, but CSCI, which is nearly 40% of revenues, is really hitting its stride. The business grew 24% constant currency in the quarter, 11% organically. The strong EU consumption I just noted was due to high incidences of cough, cold, and flu, strong brands, share gains, the stickiness of our strategic price increases, and the greater leverage from the HRA, from the HRA, Pan-European brands. The CSCI business has really come together beautifully. We also once again experienced solid consumer demand in the U.S., especially when you adjust for purposely discontinued low-margin products from our SKU Rationalization Program and from divestitures. Our OTC business grew 9% in the quarter in total, including a 200 basis point unfavorable impact from SKU Rationalization. It's worth noting that shipments to customers were greater than consumption during Q1 in the U.S. as customers replenished inventories that were reduced below normal levels as they exited 2022, and that's something we see often in the fourth quarter, and it's not unusual. Other notable category movements in the quarter included women's health, which benefited from the addition of L01 and other brands from the acquisition of HRA, skin care, which benefited from the addition of the Compeed and Mederma brands, an increased manufacturing capacity for our Minoxidil hair regrowth products in the U.S., and oral care, which I just discussed. Let's spend a minute on our CSCA Nutrition business. Net sales grew 10% in the quarter, driven by strong growth in the Contract Infant Formula business, and an additional $36 million in sales from the GoodStart Acquisition. As a reminder, this growth is compared against a very strong year-ago period that benefited from the infant formula shortage. The $36 million sales benefited from the GoodStart Acquisition and includes an unfavorable impact of $9 million due to a voluntary recall of certain lots of the Gerber GoodStart SoothePro Infant Formula. Let me go into a little more detail here. In March 2023, the FDA released a national strategy and issued a letter to members of the infant formula industry to assist in improving the microbiological safety of powdered infant formula. This letter has a significant impact on our manufacturing and cost to produce infant formula. Of course, Perrigo supports the FDA in its mission to ensure food safety and promote nutrition for babies. In response to the FDA's new strategy and evolving regulatory expectations, we are, one, making significant investments to further modernize our infant formula infrastructure and, two, modifying and evaluating further adjustments to our manufacturing processes and procedures, including refinements to sanitation procedures, quality hold times, and more. As I said, these actions will negatively impact supply and significantly raise the cost of producing infant formula. The substantial cost of these new regulatory requirements will be offset with a price increase. But even after the price increase, we anticipate that Perrigo store-brand products will deliver consumers an approximate 40% savings per ounce as compared to the national brands. Let me pull this all together. I can't say enough how much Perrigo has transformed over the past few years and how excited I am about our future. Our fundamentals are strong and getting stronger as we continue to win market share. Our strategic acquisitions are having a big accretive impact. Our gross margin is expanding, and we continue to optimize our operations and accelerate our strategic investments to drive outsized growth over the next three years. With that, I'll turn the call over to our CFO to discuss financials in more detail, and I'll come back in the end to wrap up before Q&A. Eduardo?

Thank you, Murray, and good morning, everyone. For this morning's call, I will provide some color on our Q1 financial results, walk through the drivers of our gross margin expansion, highlight our cash flow and balance sheet metrics, and then wrap up with our 2023 guidance. Starting with our GAAP-to-non-GAAP summary, the company reported a GAAP loss of $1 million for the first quarter, or a loss of $0.01 per diluted share. Adjusted net income was $61 million, and adjusted diluted earnings per share was $0.45 per share versus $0.33 per share in the prior year quarter. A few adjustments to the quarter pre-tax non-GAAP P&L totaling $71 million were amortization expenses of $66 million, acquisition and integration-related expenses of $4 million, mainly related to the HRA and Gateway facility, and restructuring charges of $3 million, primarily related to our supply chain reinvention program. Full details can be found in the non-GAAP reconciliation table attached to this morning's press release. From this point forward, all dollar numbers, basis points, and margin percentages will be on an adjusted basis unless stated otherwise. Since Murray already provided details for our top-line results, I will begin my comments with consolidated gross profit, which grew $84 million, or 23.3% in the quarter, with our gross profit margins expanding 400 basis points versus the previous year quarter. Growth was driven by acquisitions, strategic pricing actions, and favorable volume mix, which were partially offset by inflation, two voluntary recalls, the impact from the HRA distribution transition, and the unfavorable impact of currency translation. Operating income increased $33 million, or 38%, driven by favorable gross profit flow-through, which was partially offset by higher operating expenses due to the inclusion of HRA and the Gateway facility net of the divested business. Interest and other expenses increased $15 million due to last year's debt refinancing associated with the HRA acquisition, which both closed in Q2. We also saw a benefit in our income tax rate of 300 basis points versus previous year due to changes in the jurisdictional mix of earnings. Looking at the bottom line, these factors translated into an adjusted EPS of $0.45 in the first quarter, an impressive 36% increase compared to last year, or 47% improvement on a constant currency basis. Looking at slide 16, first quarter gross margin improvement of 400 basis points was driven by both business segments. This was achieved through an equal split between the legacy Perrigo business and the HRA and Gateway acquisitions. Within CSCA, gross margin in our OTC business grew an impressive 450 basis points driven by favorable mix on existing products, benefits from new products and acquisitions, and strategic pricing actions that offset inflation. As Murray mentioned earlier, our U.S. oral care business is rebounding from the supply chain and logistic dynamics experienced last year and accomplished a 360 basis points increase in gross margin driven by strategic pricing actions, improved service levels, and favorable customer mix. These factors led to a 310 basis points expansion in CSCA's gross profit margin, including an unfavorable impact of 150 basis points from two voluntary recalls in the quarter. The FCI gross margin expansion of 470 basis points versus the prior year was driven by contributions from the HRA acquisition and strategic pricing increases, which more than offset the impact of inflation in the quarter. The gross margin expansion included an unfavorable 90 basis points impact from the HRA distribution transition. Bringing these together for total Perrigo, gross margin expanded 400 basis points versus last year, including a combined 130 basis points headwind from the two voluntary recalls and the impact of the HRA distribution transition. We also achieved operating margin expansion across both segments in the quarter. Perrigo's operating margin expanded 200 basis points compared to the prior year as gross profit flow-through due to the factors I just discussed were partially offset by higher operating expenses, mainly related to the acquisitions of HRA and the Gateway facility and advertising and promotion investments in our core brands. Now moving on to cash flow. Cash on hand was $553 million at the end of the first quarter, down from $601 million at the end of the fourth quarter last year. We haven't been impacted by recent financial institution instability in the U.S. and Europe, and we have proactively taken actions to diversify our cash flow management amongst low-risk financial institutions. We will continue to monitor these developments closely. Operating cash flow for the quarter was $19 million, a conversion of 32% in line with our phasing for the year, which we expect to be similar to last year. As a reminder, we typically experience the heaviest cash outflows in the first quarter, driven primarily by annual employee incentives. In the quarter, operating cash flow included outflows of $10 million from acquisitions-related and restructuring expenses. We also invested $23 million in capital expenditures and returned $36 million to our shareholders through dividends in the first quarter. Looking ahead, we're still projecting 100% operating cash flow conversion to adjusted net income for the full year. Also, our net leverage over the trailing 12 months was 5.3 times adjusted EBITDA, down from 5.5 times at the end of 2020. Totally continued strong momentum in our business through Q1, we are reaffirming our 2023 guidance, which includes, as Murray discussed, higher costs coming in our CSCA infant formula business with pricing actions to offset these costs. Additionally, timing has shifted slightly in distribution transitions from HRA to Perrigo, and we now expect the unfavorable impact from HRA sales returns in Q2 and Q3 to be similar to the $0.05 EPS impact in Q1 and minimal in Q4. This is good news as it means our transition from distributor to direct sales is going faster than originally planned and does not change the total estimated earnings per share impact of $0.16 to $0.18, only the timing. And we will continue to provide updates each quarter on the progress we are making with these transitions. Summing this up, we now expect our second half EPS weighting to be slightly higher than discussed at our February Investor Day. As a reminder, we are investors in Latin America and ScarAway divestitures at the end of Q1, and we will anniversary the HRA acquisition during the second quarter. Since joining the company last year, I have been repeatedly impressed by our team's ability to adapt and overcome in the face of numerous challenges. From record inflation to logistics and supply chain issues, our team continues to navigate in a dynamic environment. This quarter is no different. On top of a solid financial performance, we also eliminated almost all of the remaining tax overhang on the company. Nearly $1 billion with only a minor cash impact to the company. This overhang through my attention when I first joined Perrigo, and I'm now extremely pleased to say that these are behind us. I look forward to carrying this momentum forward through the rest of the year as we continue to make progress towards delivering on our strategic initiatives, strengthening our business and delivering substantial growth in a dynamic environment. Before I turn the call over, on behalf of the entire operating committee, I would just like to say that it has been a pleasure working with you, Murray. The transformation that you have led during our tenure here has truly set Perrigo on a path for success, and we could not be more excited to drive our strategy forward. We wish you all the best in your retirement, and thank you for your tremendous efforts over the past five years. Now back to you, Murray, for your closing remarks.

Thank you, Eduardo. That's really kind. A few comments on my retirement announcement before we move on to Q&A. As you know, I joined Perrigo almost five years ago to lead the transformation of the company from a health care company to a consumer self-care company. Leading that transformation has been one of the most exciting assignments of my career. From 14 M&A transactions to reconfigure the company's portfolio, the near complete elimination of the company's $4 billion accidental legal overhang to the strategic path put in place to create value for the future. I am proud of what my team and the Board support has accomplished. The fact that this all happened in the face of a global pandemic, global supply chain disruption, the Russian invasion of Ukraine, and the highest input cost inflation in decades makes the transformation that much sweeter. All the pieces are now in place. Perrigo is growing its top line robustly. We've added over $1.5 billion in revenues to our consumer businesses since the beginning of the transformation. Perrigo is growing and expanding its margins and is set up to continue to do that going forward, and it's growing its bottom line. In the first quarter, I think we were right at the top or nearly at the top of our consumer peer group. It has a strong plan in place to produce leverage, and the company has a clear strategic path for sustained long-term growth. Now it's the right time for someone else to take the reins of Perrigo and relentlessly drive the execution of our strategic plan for years to come. I truly believe that we collectively have set up Perrigo for a bright future and to create tremendous value for investors. Remember, despite strong results, Perrigo continues to trade at almost a 50% discount versus its peer group. And that's why even though I'll be retiring and I will sell a portion of my Perrigo holdings to diversify, I intend to remain a large individual shareholder of Perrigo and will continue to be very attached to the success of the company. I've set the target retirement date for the end of July, and I'm working with the Board on identifying a successor and ensuring a smooth transition. Lastly, and most importantly, I'd like to thank the Perrigo employees who have supported me through the transformation. You are truly amazing, and it's been an honor to lead you. And with that, operator, we'll now take questions.

Our first question will come from Susan Anderson with Canaccord Genuity. You may now go ahead.

Hi, good morning. Thanks for taking my questions and Murray, congratulations on your retirement. You've done a great job setting the company up for future success.

Thank you, Susan, and good morning.

Yes. So maybe just I wanted to drill down a little bit first on the gross margin, the 400 basis points. I think you said 130 bips from the recalls with the HRA distributor. I guess, how much of that was the infant formula? And then also, if you could maybe just give a little bit more color on the rest of the drivers there between pricing, mix, maybe currency, etcetera.

Okay, let me address the first part regarding the gross margin and its variations across our businesses, and then you can elaborate on the individual factors. The gross margin for CSCA improved by 310 points compared to last year. OTC saw an increase of 450 points, moving from a 25% gross margin last year to 30%. Oral Care's margin rose from 25.3% to 28.9%, up by 360 points. However, Nutrition experienced a notable decline, which worsened from the fourth quarter to the first quarter due to the recall impact. CSCI, on the other hand, enjoyed a 480 basis point increase. Overall, every segment of our business showed significant gross margin growth as expected, although we faced certain challenges. Eduardo can provide specific details about the impacts, including the transition from distribution to our own sales force and the two recalls that collectively affected $17 million or approximately $0.10 of our business. Despite these challenges, it’s clear that our margin programs are performing exceptionally well. They are not driven by pricing adjustments or recovery initiatives but involve various strategies that will continue to promote expansion and growth over time, particularly as our highest-margin sectors are growing the quickest. Now, Eduardo will address your questions regarding the specific drivers. Please go ahead.

Yes. So talking specifically there, Susan. So between the GoodStart impact as compared to last year, we had about 50 basis points there. And also on the inventory transition on HRA about 40 basis points. And we also had around 40 basis points related to the OTC recall that we announced there. And so on the flip side, pricing had a positive impact of about 300 basis points and volume and mix about 160 basis points positively. And those combined more than offset the impact we had on inflation and input cost that was about 230 basis points.

Okay. Great. That was really helpful. Thanks for all the details. And then on the infant formula business, I guess, do you expect there to be a sales impact, it sounds like the rest of the year or two with the changes from the FDA? And then also, how much will this pressure be on sales and margin and how long will it take you to get back in stock? And just in terms of raising prices, do you guys have an idea of what that will be and the timing and then I guess pricing does increase across the category. I would assume this is actually helpful to your private label business, correct?

Yes, those were quite a few questions. If I don't cover everything, feel free to ask again. It’s important to note that this letter was somewhat unexpected. While it was well intended, I’m not sure the author fully grasped its implications on manufacturing and production, especially given the current shortages. I want to clarify that the Perrigo quality control system remained intact during the first quarter. Had this letter been issued three weeks earlier, there would have been no need for a recall. Our quality control measures were effective. The FDA, in light of last year's events and pressure from Congress and others, has aimed to elevate safety standards, which is commendable but does have consequences, as we are discussing now. There will be more full plant sanitizations and shutdowns, negatively affecting production, but this will be balanced by the pricing adjustments. Although we're experiencing a slight reduction in volume, we'll offset that with higher pricing. We still anticipate achieving our original plans for the infant formula sector, though it may be more back-loaded. Our pricing strategy isn't based on competition; it's designed to counteract the increased costs and lower productivity. Interestingly, after the necessary price adjustments, our product will be about 25% cheaper on a per unit basis. We will also provide a bit more product per unit. Therefore, on a cost per ounce basis, we will offer a 40% discount post-pricing. While customers generally dislike price increases, during my recent five-day participation at NACDS, our largest conference, everyone acknowledged the need for these changes. They recognized that we must maintain production and profit margins, and understood that we are not inflating margins but simply addressing regulatory changes. I believe there will be strong support for this. Although no one enjoys raising prices in a competitive market, it is necessary, and I’m confident we will successfully navigate this. I believe I have addressed all your questions.

Yes. That's great. Thanks. And then just really quick on your inventory levels and then also at retail. I guess are there certain categories you had more of? And how has your ability then to get back in stock quickly?

It depends on the category. We're making progress, but I've heard at NACDS about various categories where inventory levels have returned or might even be a bit too high. That's not our situation yet. We shipped slightly more than what was consumed in the first quarter, but we are still averaging about 1.5 weeks low in inventory at the retail level. This is before we even start building our own safety stock. Currently, our productivity in the manufacturing facilities is excellent, operating at record levels. However, we face challenges in getting our inventories back to where they should be. Last year, we dealt with higher costs throughout the summer, typically our down season for building inventory. We are again running at record levels, especially in liquids and pediatric liquids, which had been a concern recently. Based on current trends in illness, we expect to have safety stock ready for the full cough and cold season next year. Regarding our nutrition business, we are navigating new regulatory guidelines that will require additional full plant sanitization and longer quality holds to ensure compliance. This has been an ongoing challenge for about 18 months, and while I can't predict when it will be resolved, there isn't an end in sight yet for getting back to a safety stock position. The positive aspect is that we acquired additional facilities, giving us more product to work with, and we are committed to making those investments. Within the next year, we should increase our capacity by an additional 7 million pounds. For the rest of the business, we're back to service levels, and service levels are stable in Europe. In the U.S., we're in the '90s, and aside from nutrition and cough/cold, we have recently returned to the '90s as well. Overall, everything is headed in the right direction.

Okay. Great. And if I could just ask one more on the week's AdCom on Opill. Curious, just any thoughts you could give around that on how they're going to think about this? And then also, if it is approved, your thoughts around just the market opportunity in the U.S., is this going to basically add to the market? Or will it take some of that share? And then any color you could give on the timeline to launch and impact to the P&L? Thanks.

I believe I saw it mentioned in your note, but it's important to clarify that it isn't reflected in our current modeling or guidance for the next few years, especially regarding birth control, which represents a significant shift. We're looking at an estimated $100 million in year one revenues. As for the FDA's timeline, they will likely need a couple of months to review the data and consider the advisory panel's input, which suggests that any decisions would come by the end of this year or early next year. There’s no set date yet, as it depends on the FDA's decision-making process and the implications that arise from it. Philosophically, this product has been available since the 1960s and has ample safety data backing it. Overall, we are optimistic that the FDA will approve this application. There are challenges, as is expected, and we will be providing testimony to support it. Ultimately, we believe approval is likely, and we hope it occurs this time around. However, this is not included in our current financial projections for this year or next, meaning it represents potential upside. This opportunity is significant for the company, and we are enthusiastic about advancing women's health.

Great. Thanks so much. Good luck the rest of the year.

Our next question will come from Chris Schott with JPMorgan. You may now go ahead.

This is Ethan Brown on for Chris Schott. Thanks for taking my question. I guess, first off, you already talked about this a bit. But on the nutritional segment, just how do you think about sales growth for the rest of the year as we move past the infant formula shortages, the disruption this quarter and then with the FDA update as well?

Okay. Let's start by recalling that last year we reduced our safety stock during March and April, with February being slightly affected. March and April saw significant spikes, but after depleting our safety stock, we faced challenges as the year went on, particularly in our Vermont facility with its older equipment. This led to difficulties in maintaining our operations in the latter half of the year. Overall, I expect the year to have some fluctuations, but it should still be a growth year. We have substantial unmet demand even with the addition of the Nestle facility. The concern isn't demand; it's about our production capacity and compliance with new regulatory standards and financial considerations. I don’t have the exact forecast right now, but we are sticking to our plan. As for our pricing, we anticipate an increase in the latter half of the year due to previously depressed prices in that timeframe, particularly concerning infant formula, which is influencing our nutrition figures.

Thank you. That's great. And then on pricing outside of the nutritional segment, do 1Q results reflect most of the planned pricing actions or can we think about some further price opportunities as we move through the year?

It's a two-part answer. First, it took us nearly until midyear to see improvements in our performance compared to traditional consumer packaged goods companies with national brands in the U.S. I'm focusing on the U.S. market here; our international business follows a similar trajectory to that of any branded company. In the U.S., negotiating with customers on store brands caused us to lag initially because most of our price increases came into effect around midyear. Therefore, I anticipate a significant benefit in the second quarter of this year on most of our products. We will begin to compare against those figures as we move forward. The good news is that throughout this crisis, we've learned to effectively price for costs when necessary. While I'm not ready to give a definitive answer to your question, as CEO, I have various strategies at my disposal. I may focus on pricing, costs, new products and innovation, mergers and acquisitions, supply chain changes, or capital structure adjustments. We will continuously evaluate which opportunities best align with our guidance. I genuinely believe that Perrigo, with its current metrics trading at a 50% discount on valuation, is facing credibility challenges and needs to deliver on its financial forecasts. We will utilize every tool at our disposal to consistently achieve and meet the commitments we've made for the year. In doing so, I think everyone, including myself and my future retirement, will reap the benefits.

And then maybe one last one for me. Can you just talk about the trends you're seeing on the private label versus national brands, given the current macroeconomic environment and anything notable to keep in mind there? Thank you.

Yes. Eduardo, perhaps feel free to jump in here. But what I see is our volumes growing and their volumes declining. You don't see the dollar swing of down trading as much because they're more aggressive on pricing. I don't want to price if I don't have to. That's our competitive advantage. We want to have a good discount versus the national brand and with good gross margins and then grow market share over the long haul as partnership with our customers. So you see clearly, most national brands, etcetera, have priced more aggressively than us. But on the other hand, we used to be in a situation where we were having to make price concessions. Now we've gotten first to stabilization and now our ability to price for growth when necessary. As a result of all of that, we are gaining market share in volume, meaning consumers are down traded.

Our next question will come from Daniel Biolsi with Hedgeye. You may now go ahead.

Thank you, Murray, on your well-earned retirement, I take it, you're also retiring from the Board.

Correct. That automatically happens, yes.

Okay. And then I was wondering if you could quantify the product shortage impact on the CSCA upper respiratory segment, like what that was? And if it was lost sales or you consider it just delayed?

No, those are lost sales. Currently, we were trying to ascertain a number. We had originally forecasted around $25 million for the first quarter, and we shipped about 25% more than that. However, we had orders that could have doubled that amount. I don’t want to be overly specific, but it could have been $25 million or $30 million more. I’m making rough estimates here, but the key point is that we had elevated demand; we could have shipped more. During the cough/cold season, people needed to purchase something. Our cough/cold sales were up, and production levels in our factories increased significantly. The teams did an excellent job, but demand still exceeded our capabilities. This is why I’m excited about our supply chain reinvention, which I mentioned earlier, focusing on simplifying and standardizing over 1,000 SKUs. This approach, combined with Redzone, will increase our capacity. We aim to grow and gain market share while being mindful of our return on invested capital. We do not want to just add equipment, lower prices, and receive no return. This is an elegant solution that could open a path for a 25% to 50% increase in capacity for our cough/cold business through supply chain innovation, standardization, and simplification that reduces line changeovers and enhances operational efficiency. I’m pleased to report that in the three test lines we implemented in the first quarter, we have seen improved operational effectiveness. We believe we can reclaim lost sales during the next cough/cold season. The potential is evident, but it’s not a case of sales being pushed forward.

Right. Thank you, Murray. And then just following up on that, what have your initial conversations been with your customers about reducing some of the SKUs? Has it been what you'd expected? Or have there been some pushback?

No, it's actually better than we anticipated. We're initially focusing on the simpler tasks, which Eduardo has addressed. The simpler aspects are those not directly related to consumers. The complexities arise when we consider what customers see regarding packaging, such as the number of pills in a bottle or the bottle size. Surprisingly, about 80% of our current complexities do not involve consumers directly. For instance, if one customer's label is an eighth of an inch larger than another's, it isn't even visible to the naked eye, yet we have to halt production for significant adjustments to accommodate the new label size. This also applies to slight variations in bottle size, affecting shipping materials and configurations. Unlike national brands that have only two options, we deal with complexities involving various packing methods. Perrigo has developed a specific expertise in handling these complexities, which has inadvertently added layers of difficulty that weren't fully acknowledged. As I mentioned at Investor Day, this complexity prevents us from implementing automated case packing. In 2023, there is a consensus that we need to establish standardized outer cartons, label sizes, and more, as many of our customers were unaware of these discrepancies. The first 1,000 SKUs we tackle will be more straightforward, but we will continue this process over the next few years. Eventually, we should aim for consistency, such as ensuring everyone uses a 225-count package instead of variations like 200 or 250 counts. Despite our brand focus, whether it's a store brand or a national brand, we have conducted a major consumer study that will inform us about what consumers want when shopping. They prefer products that are easily comparable to national brands without the need to do any calculations, ensuring they recognize the value proposition in terms of quality and cost.

Thank you.

That's all we have time for and marks the conclusion of our question-and-answer session. I would like to turn the conference back over to Murray Kessler, President and CEO, for any closing remarks.

Yes. Just once again, thank you for your interest in Perrigo. Thank you for supporting and investing in the business and believing in me, whether it was here at Perrigo or Lorillard or UST. It's been a heck of a run, and I hope to see as many of you as I can before I actually say my final goodbyes, but I've worked hard for you, and I can tell you that everybody at Perrigo will continue to work hard for you and make your trust in us pay off then over the medium, short, long term, all of it. So thank you again for your interest in Perrigo.

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