Good morning, ladies and gentlemen, and welcome to Perrigo First Quarter 2024 Financial Results Conference Call. This call is being recorded on Tuesday, May 7, 2024. I would now like to turn the conference over to Brad Joseph, VP Global Investor Relations. Please go ahead.

Good morning and good afternoon, everyone. Welcome to Perrigo's First Quarter 2024 Earnings Conference Call. I hope you all had a chance to review our press releases issued this morning. A copy of the releases 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, Patrick Lockwood-Taylor; 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 releases issued earlier today. A few items before we start. First, unless stated, all financial results discussed and presented are on a continuing operations basis. Continuing operations for the quarter include the HRA Rare Diseases business, which was classified as held for sale after the quarter end and does 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, exited product lines and currency in both comparable periods. All comments related to constant currency removed the impact of currency translation versus the prior year by applying the exchange rates used in the comparable measurement in the prior year's financial statements. And third, Patrick's discussion will focus solely on non-GAAP results, except as otherwise noted. See the appendix for additional details and reconciliations of all non-GAAP financial measures presented. And with that, I'm pleased to turn the call to Patrick.

Thank you, Brad. Good morning, good afternoon, everyone. I'd like to begin our call today by emphasizing the important strides we've made to further our One Perrigo strategy, deliver on our purpose to make lives better through trusted health and wellness solutions accessible to all. Let's start by recapping our quarter 1 results against the expectations that we discussed in our fourth quarter 2023 earnings call. First, we planned actions to augment and strengthen our infant formula business, which would have an impact on our first quarter EPS, and they did. While infant formula actions drove an EPS headwind of $0.30 versus the prior year, first quarter EPS was approximately $0.06 ahead of our projection due to the timing of infant formula shipments to customers. Actions taken in infant formula were impactful, but necessary. The significant progress we have made sets us up well to achieve a quality-controlled, reliable manufacturing environment, though there is much more work to be done. I believe that the quality and compliance actions and investments we have taken will strengthen our competitive position in the industry over the long term. Also, as expected, SKU prioritization actions in CSCA weighed on quarter 1 organic net sales and EPS growth. However, these actions had multiple benefits, including gross margin expansion of 50 basis points across the enterprise in quarter 1, greater focus on more profitable areas of our portfolio, and additional production capacity as we build out our blended branded business. Next, as highlighted in our last earnings call, U.S. OTC retail inventories were above average entering quarter 1. As expected, retailer inventory destocking led to lower shipments of product to customers compared to the prior year. Encouragingly, consumption across Perrigo's U.S. OTC business remained healthy at plus 1.9% over the last 13 weeks ending March 24. Based on current consumption trends, we believe that retail inventory levels should normalize during quarter 2. Finally, CSCI continues to perform very well. Organic net sales in the quarter grew 7%, and operating margin expanded by 290 basis points versus last year to 19.7%. Collectively, the first quarter was a good start to the year as we delivered against our commitments, and we remain on track to achieve our goals in 2024. Turning to our first quarter financial highlights. As just discussed, first quarter net sales were heavily impacted by infant formula in addition to SKU prioritization actions to enhance margins as part of our supply chain reinvention program. These factors caused a decline in reported net sales of more than 8%. Organic net sales declined 7%, which comprised 3 major components: An impact of minus 4.3 percentage points from infant formula, an impact of minus 3.6 percentage points from SKU prioritization actions, and organic net sales growth of plus 1 point from the rest of our business, driven by strong performance in CSCI and the launch of Opill. Quarter 1 gross margin declined 90 basis points to 36.5%, which comprised an unfavorable 280 basis point impact from infant formula, a 50 basis point benefit from SKU prioritization actions, and a 140 basis point benefit from the rest of the business led by gross margin expansion in U.S. OTC and Oral Care. As I said, first quarter EPS was ahead of projection but was down $0.16 from a year ago to $0.29 per share. Infant formula had an unfavorable $0.30 per share impact, and SKU prioritization actions had an additional $0.06 impact. These headwinds more than offset EPS growth of $0.20 per share from the rest of the business. Digging a bit deeper into net sales, we delivered solid performance in women's health which was led by the U.S. launch of Opill and in skin care, which benefited from robust growth in our Compeed and Mederma brands. Compeed achieved net sales growth of 56%, driven by market share gains and the successful product line extension of Compeed spots. Mederma net sales grew 51% in the quarter driven by Mederma Cold Sore, which added incremental sales to the brand and strong growth in e-commerce. Net sales across most global categories were impacted by SKU prioritization actions in CSCA, which weighed most heavily on skin care, pain and sleep aids, and digestive health. Inventory destocking at U.S. retail customers also affected growth, as I just discussed. This impact was most notable in cough/cold due to a lighter season than the prior year and industry-wide supply recovery. Quick note on the U.S. allergy season: There has been a recent uptick in incidence levels and consumption over the past 13 weeks. A strong and prolonged allergy season could drive the need for customer replenishment even as U.S. retail inventories normalize. If a strong season does materialize, we're in a very good position to take advantage. Looking at our 2024 operational priorities, I'm pleased to say we remain well on track. First, we are making good progress augmenting and strengthening our infant formula business and are working to recover manufacturing volumes. We also executed the nationwide launch of Opill in the U.S. We also continue to benefit from accretive priorities. First, we are on track to deliver a total of $25 million in incremental HRA synergies as we complete integration activities. Second, our supply chain reinvention program drove gross savings of $12 million in the quarter and gross margin expansion of 50 basis points from SKU prioritization actions. And third, Project Energize attained $17 million of cost savings in the quarter, and we remain on target to deliver $140 to $170 million in pretax annualized savings by 2026. Turning to infant formula, as the leading U.S. manufacturer of store brand formula, Perrigo plays a critical role in the health and wellness of hundreds of thousands of babies every year. Over the past few months, we have made significant progress to augment and strengthen our infant formula manufacturing network. This included, in some instances, pausing production for comprehensive cleaning and infrastructure improvements, in addition to enhancements of quality protocols and manufacturing processes. At this point, any planned large-scale plant resets have been completed, and we are progressing to the next phase of our quality and operational enhancements. This next phase includes further policy and procedural enhancements at the site level. In addition, we are making further investments in infrastructure and people as appropriate. Importantly, we do not expect this continuing body of work to result in extended shutdowns beyond normal maintenance activities. The recovery of manufacturing volumes is expected to continue to build throughout 2024, stemming from longer quality hold times and faster, shorter campaign-style production runs. Sales volumes are expected to improve during the second half of this year, followed by market share recovery. All of this is in line with our original outlook. Stabilization of infant formula will remain a journey, and I'm pleased with the progress we have made. Maintaining quality compliance is core to Perrigo's business and culture. We will continue to invest in quality, capacity, and other enhancements as we bolster quality-controlled reliable manufacturing across our network. With the launch of Opill, Perrigo has taken a historic step for women's health by creating an entirely new OTC category for oral contraceptives in the U.S. During the quarter, the Opill team executed the most revolutionary and holistic product launch in the history of Perrigo. The launch was broad, and Opill can now be found at more than 65,000 retail locations across the U.S. in addition to major e-commerce retailers. The response to this launch has been really amazing from customers to academics and now consumers. The Opill launch program encompasses a 360-degree approach to drive awareness. This began with a coordinated pre-launch campaign that drove highly positive sentiment, resulting in high awareness for Opill even before our formal media campaign ramps up over the coming weeks. Through activation plans, strategic partnerships, including a newly announced partnership with the WNBA and the increasing support of public and private healthcare plans, Opill is revolutionizing the landscape for women's health. Early Opill consumption and conversion metrics are encouraging. Through the first few weeks of activation, the consumer time to conversion on opill.com has been impressive with limited touchpoints. The time to conversion demonstrates that our team has the right strategy in place to guide consumers through their decision journey and promote repeat usage, which will ultimately determine the long-term success of Opill. I'd like to congratulate our team, partners, and supporters who've played a vital role in the early success of Opill. Perrigo is committed to advancing women's health, and we'll look to further innovate and provide accessible solutions that empower women to take charge of their own self-care journey. Now I would like to share an update on our blueprint for One Perrigo. The work we have conducted to identify our winning portfolio is clarifying how we will leverage our core competencies and strengths within our respective categories. Strategies within each category will depend on the long-term value creation potential and our right to win. These factors will shape various category management objectives, including top-line growth, profitability, and cash generation. To fuel growth across our portfolio, we must continue to invest in innovation, sourcing, and new avenues of differentiation to deliver consumer-preferred offerings. Work to bolster our innovation pipeline is underway and will take time to fully develop, but we are approaching this objective from a position of strength and will work with our retail partners to lead category growth in the self-care aisle. Our U.S. store brand business remains a cornerstone of the Perrigo portfolio and is the furnace that will fuel our blended branded business. Given the continuous evolution of the self-care landscape, we are conducting a thorough analysis regarding the position of this business, including network design, capacity utilization, and category penetration. Our priorities through fiscal 2025 include relentless execution in our core business to maximize free cash flow generation and deleveraging. The milestones are delivering margin expansion from Project Energize, returning our infant formula business to stable profitable operations, and driving favorable outcomes with key customers in our U.S. store brand business. In parallel, we will continue to implement One Perrigo operating model enhancements to build a leaner, more efficient, and agile global organization to enable our strategy. Our longer-term objective for 2026 and beyond is to realize our blended branded strategy, a model that delivers sustainable, value-accretive innovation. We will have made targeted investments in our highest potential growth opportunities in the most attractive categories and build consumer good capabilities. This will enable global branded growth with a mind towards accretive margins, cash flow, and returns. We look forward to further articulating this strategy at our Investor Day later this year. As you may already see, Svend Anderson, President of CSCI will retire from Perrigo later this year. During his 7 years leading this business, Svend has played a pivotal role in the success of CSCI by focusing the portfolio, concentrating on innovation and brand extensions, all while making significant contributions to Perrigo's overall growth and development. On behalf of the Board of Directors, management team, and everyone at Perrigo, we appreciate all that you have given, Svend, and all that you've done for Perrigo. Svend is handing over a business that has performed very well, and I am confident that Roberto will continue to drive success. Roberto Khoury is joining Perrigo later this month and will officially lead CSCI in August. He joins Perrigo from ChemView and has more than 20 years of experience in branded consumer products, including leadership of pan-European brands, accelerating digital and e-commerce capabilities, reducing portfolio complexity, and improving integrated planning accuracy. I'm confident in Roberto and his ability to further our One Perrigo strategy. In summary, we remain highly focused on our priorities, including our One Perrigo strategy. We reported a good first quarter, and we'll continue executing against our 2024 operational priorities. We are making great progress in strengthening and augmenting our infant formula network. Opill was off to a fast start, and we're on track to deliver our accretive initiatives. We will do this while progressing our blueprint for One Perrigo to consumerize, simplify, and scale our business, all while focusing on cash, returns, and deleveraging. With that, I will now turn the call over to our CFO, Eduardo, to cover the financials.

Thank you, Patrick. Good morning and good afternoon, everyone. Looking at the first quarter financials, starting with the GAAP to non-GAAP summary. The company reported GAAP net income of $4 million or $0.03 per diluted share. Adjusted net income was $40 million, and adjusted diluted earnings per share was $0.29 versus $0.45 in the prior year. Primary adjustments to our first quarter non-GAAP P&L were: first, the removal of a $113 million tax benefit, primarily driven by an $84 million benefit related to the planned intercompany sale of intellectual property; second, amortization expenses of $59 million; and third, restructuring charges of $44 million primarily related to our Project Energize and supply chain reinvention programs. Full details can be found in the non-GAAP reconciliation table attached to today's press release. From this point forward, all financial results discussed will be on an adjusted basis unless otherwise noted. As highlighted, first quarter results were heavily impacted by the actions we are taking to strengthen and augment our infant formula business and SKU prioritization actions to enhance margins. This led to an operating income decline of 22%. Excluding the impact of infant formula, adjusted operating income from the rest of the business grew mid-teens percent. Let's dig into additional details. Looking at our segment performance during the quarter, CSCI continues to perform well, highlighted by plus 7% organic net sales growth. The strong top-line performance was driven by growth in Compeed and the absence of distributor transitions that unfavorably impacted the prior year. CSCI gross margin was impacted by lower volumes, partially in the cough/cold category due to supply constraints and lower seasonal incidents across Europe. However, operating margin expanded 290 basis points to 19.7%, driven by expense reductions resulting from synergies and ROI-focused advertising and promotion spend as part of Project Energize. I, too, would like to thank Svend for his tremendous efforts and leadership over the years, while also welcoming Roberto to the Perrigo team. With the CSCA, infant formula, and SKU prioritization actions weighed on Q1 performance, with net sales down 15.7% and organic net sales down 14.6%. Organic net sales from the rest of the CSCA business declined 2.3% due primarily to U.S. retail inventory destocking across most categories. As Patrick noted, we believe retail inventories should normalize in Q2. First quarter CSCA gross margin declined 280 basis points versus last year, including minus 520 basis points driven by infant formula. The infant formula impact was partially offset by gross margin improvement of plus 10 basis points from SKU prioritization actions and plus 230 basis points expansion from the rest of the business driven by favorable product mix in U.S. OTC and Oral Care. Continuing these margins, Perrigo's first quarter gross margin declined 90 basis points, including an impact of minus 280 basis points from infant formula. When excluding this impact from infant formula, Perrigo achieved a meaningful year-over-year gross margin expansion of plus 190 basis points. All of these translated into operating margin expansion of plus 260 basis points, excluding the impact from infant formula. Two central takeaways here: First, the importance of augmenting and strengthening infant formula cannot be overstated, and second, margin across the rest of the business continues to recover and expand. Now to EPS. Infant formula, as expected, had an unfavorable $0.30 per share impact, and SKU prioritization actions had an additional $0.06 impact year-over-year. These headwinds more than offset a benefit of $0.20 per share from the rest of the business, which included a reduction of $0.02 from the impact of exited products. Before turning to the balance sheet, a few comments on the proposed divestment of HRA Rare Disease business, which has been a key component of our 2024 deleveraging plan. This proposed divestment further supports our focused consumer self-care portfolio, and the business will best flourish as part of the study group. We plan to redeploy the upfront proceeds of EUR 190 million later this year for debt repayments. Importantly, the financial impact of this proposed divestment was included in our original 2024 outlook. I would like to thank the HRA Rare Diseases team for their dedication and focus as they continue improving the lives of patients with rare diseases. Cash on the balance sheet at the end of the first quarter was $659 million. First quarter operating cash outflow was $1 million due to infant formula and restructuring costs primarily related to Project Energize. During the quarter, we also invested $25 million in capital expenditures and returned $38 million to shareholders through dividends. Sources and uses of cash for 2024 were largely intact from our initial outlook, apart from upcoming cash tax payment related to the planned intercompany sales in actual property that will benefit the company over the long term. We continue to anticipate operating cash flow conversion for the full year of 90% to 100% of adjusted net income. Looking at the balance of the year, we expect Q2 to be our lowest operating cash flow quarter due to restructuring costs related to Project Energize. In addition, you may have seen that Perrigo recently settled a shareholder lawsuit for $97 million without any concession of liability or wrongdoing. We expect to pay the settlement in the second quarter using cash on hand and are seeking a full recovery from insurance providers this year. In total, we now estimate a cash balance for 2024 of between $500 million and $550 million. Importantly, we continue to expect a net leverage ratio of approximately 3.8x to 4x at year-end. Looking at EPS phasing for the year, our expected weighting between the first and second half remains unchanged. As discussed, the timing of infant formula shipments realized in the first quarter, which were originally expected in the second quarter, are driving a change in our first half phasing. Outside of this, there are no updates to our previous phasing assumptions. Our 2024 outlook for total Perrigo also remains unchanged. Organic net sales growth of 1% to 3% is expected to be driven by new products, including Opill, pricing, and the absence of the HRA distributor transition impact. These drivers are expected to more than offset volume declines primarily in infant formula and a negative impact of 1 percentage point to organic growth from SKU prioritization actions. All in, net sales growth is expected to be flat compared to 2023 as organic growth is offset by divested and exited business and products. Excluding infant formula from both years, we continue to expect gross margin expansion in 2024. We are reaffirming our full year EPS range of $2.50 to $2.65 million, equating to mid-teens percentage growth, excluding infant formula. In closing, I would like to thank our Perrigo colleagues for their commitment to advance our One Perrigo vision and for their continued focus on achieving our 2024 priorities. Now I will turn the call back to Brad.

Thanks, Eduardo. Operator, can you please open the call for questions?

Your first question comes from the line of Susan Anderson from Canaccord Genuity.

I guess maybe just to start out on the infant formula business. So I think it was maybe a little bit better than expected, I think, due to some early shipments. I'm curious, is that going to take away then from the second quarter? Or should we expect kind of still a sequential improvement there? And then I think you noted that the back half sales volumes will return. I guess, I'm just curious with the plants now back up and running, why we wouldn't see kind of a sequential recovery in those volumes? And then also just on the cost for the infant formula business, is that still in line with your original expectations?

Susan, Eduardo here. Thank you for your question. So I'm going to answer your first piece, and then I'm sure Patrick is going to cover more on the other side, right? So I guess the first thing is, as we planned on the quality release of our products, some of those products we were expecting to take place in the second quarter. So as we continue to make progress on our quality processes, we were able to release those products in the first quarter and get to customers that were so much needed. So that's just a timing issue. It doesn't change our overall production plans between Q1 and Q2.

Susan, this is Patrick. Thank you for your question. I guess, in a nutshell, the interventions to get to quality compliance and reliability have gone well across all 3 plants. Probably as importantly, the start-ups and the ramp-up volumes and the throughputs are at slightly ahead of expectation, but we are in the early stages of executing a new set of GMPs. It would be premature to take up financial outlook given we're still really in learning and reacting mode. But so far, very good.

Okay. Great. That's helpful. And then so I guess on the destocking in the U.S. then, it sounds like you said across all categories, but really, I guess, mainly in cold and cough. It sounds like it's complete now. Is that correct? And then I'm just curious how inventories ended and particularly in cold and cough if they're kind of in good shape as we look into like the fall season.

Yes, Susan. So the way we're looking at and that's what we shared about the CSCA of the business, right? So we believe that the majority of that 2.3% reduction is really tied to that destocking, right? As we talked in the beginning of the call, we're seeing that across multiple categories. But most importantly, as you're aware, with a very light cough and cold season, that's something as well that impacted that. Yes.

Susan, on top, which I think you may have heard from the team here is the consumption is up nearly 2 points, while the sell into the retailers from us, so shipments were down. So you have essentially kind of a 2.5 point swing between those 2, and that's kind of a good way to think about.

Okay. Great. And that's just really because of the late start to the season, so the retailers were already stocked and it just wasn't strong enough to have to restock.

Exactly. Correct.

Okay. Great. And then one more just on the international business. I was curious what drove the growth in the skin care and personal hygiene. It looks like that was the strongest performance. And then upper respiratory was weaker. Was that also due to similar issues internationally with the weaker cold season?

Yes, the skin care segment performed exceptionally well, particularly with Compeed. Despite the challenges from the distribution transition, we experienced significant growth in the first quarter, further boosted by the extension of Compeed spots, which enhances our overall category presence. However, similar to the U.S., we faced a lighter cough and cold season in Europe, resulting in a decrease in volume for upper respiratory products, including cough and cold.

Okay. Great. And then if I just add one more on the VMS category. It looks like it was weak both in Americas and international. I don't know if it was the same drivers there. Between the 2 regions, but then also, are you seeing consumers move away from VMS at all after a pretty strong focus on their health and wellness during COVID and post-COVID?

Yes. Just looking at the bigger picture, Susan, as we go back and look at SARS and other major events that disrupted VMS. You saw an immediate typically 10% to 20% increase in consumption during the SARS or indeed during COVID. You then saw a slight regression in the category for 1 to 2 years post that, but stabilizing at a level that was still 5% to 10% higher than pre-pandemic. And that's been true for about the last 3 events over the last sort of 20, 25 years. So I think what you're still seeing is some normalization, but we continue to see strong consumption and outlook on those businesses. There was also some very near-term sort of phasing promotional activity that sort of impacted us as well. But I would say, underlying strong consumption trends, these categories are markedly bigger than they were 5 years ago, but just impacted by some phasing activity as well.

Got it. Okay. Great. If I could maybe just squeeze in one more. I'm curious what you're seeing on the trade down to private label in the U.S. And then I know international is a little bit dip, but are you seeing anything at all internationally that's impacting the branded business?

Yes, certainly, more focused on the U.S., which is 90-plus percent of our business. In the last one week or so, we've seen about a 50 basis point gain from store brand, and store brand volume share gain is actually about 150 basis points. So we are definitely seeing a better understanding of what these propositions are, what the molecule is, that bioequivalent but a tremendously better value. So as consumers continue to feel the pinch in the U.S., we are seeing good increase in store brand business, which is, of course, very good for our business.

Your next question comes from the line of Korinne Wolfmeyer from Piper Sandler.

This is Sarah on for Korinne. On Opill with the expanded coverage, can you guys touch on how this has shaped your view on total revenue potential this year and then over the longer term? And then are you currently baking into guidance from Opill? And if there's potential that this could be less dilutive to EPS now?

Thank you for that. I'll give some high level on the insurance coverage that you've heard about, and you're right to pick up on, and then Eduardo more on the sort of near-term financial impacts. This was very good news from CVS Caremark, obviously by far the largest insurance coverage there. We are still modeling through that only recently announced. We're still modeling through the impact of that, how quickly consumers will convert the degree of awareness of that, etc. It's a fairly sophisticated piece of modeling, and that's not complete. So I can't tell you what the revenue impact will be, but undoubtedly will be significant and accretive. We are also seeing states starting to provide coverage as well. You would have heard of Wisconsin. We expect others to follow both the state and CVS's move, which we were very, very encouraged by, really just improving accessibility only for this category.

Yes. So I guess it's important to mention, we're going to see Opill as margin accretive in 2024. But we continue because of all the investments that we're putting behind not only the brand but also as we think about how women's health, the whole category will evolve, we want to be the carry of this brand for the future. So we want to make sure that the awareness is pretty strong. And so we continue our plans to see an EPS be dilutive, the effect of Opill over the next 12 to 18 months.

Your next question comes from the line of Chris Schott from JPMorgan.

Can I return to the infant nutritional business? Now that we are a few months into the process, how confident are you that the remediation has resolved the issues within these segments? I'm trying to understand whether the plant shutdowns were the most difficult part of the process or if the ongoing work to ensure compliance is the biggest challenge and reflects your level of confidence in our current status. Additionally, could you provide some insight into what portion of the $0.65 impact from the remediation you expect to recover as we look towards 2025? I have one follow-up question after that.

Yes. Thank you, Chris. Good to hear from you again. I'll address the first part, and Eduardo will cover the outlook. Each of the three areas you described is equally important, but they must be tackled in order. You cannot move to the second without completing the first, and similarly for the third. The major work regarding root cause analysis, corrective and preventative measures, and the implementation of new GMPs, protocols, and staffing levels is largely finished across the three sites. As we carried out our work in Wisconsin, we managed to speed up the application of that knowledge to the other two facilities, which are now all back to production mode. As I mentioned earlier, we are successfully achieving start-up times and throughput that meet or slightly exceed our expectations, which is very encouraging. However, we must maintain constant vigilance to ensure that our environmental cleanliness, monitoring, and GMPs uphold our quality compliance. We have not encountered any positive issues that would necessitate halting production, which is a significant positive. We continue to learn what must be true to maintain those conditions, maximize production, and avoid the major interruptions that we faced historically. Overall, I’m very pleased with our current status. It’s still early to claim we have a completely reliable model, but we are moving closer to that.

And Chris, to your question, right. So remember, we're talking about our expectation to get the infant formula business on an annual basis should contribute about $140 million, right? So that's about the $35 million quarter. And so everything that we're working right now is to make sure that in the fourth quarter, we can achieve those levels. And that's why it's so critical, we may not set fully between Q2 and Q3, but we expect by Q4 to be at the debt run rate that will give us the confidence with all the actions that we're taking to make sure that from a production, from a quality standpoint, reliability, market share, we can really consistently deliver against that $140 million of objectives.

Great. And just a bigger picture question. I guess, if you think about Perrigo going forward, thinking about your 2026 and beyond plans. Do you feel like you have the right portfolio in place at this point? Or can we think about further refinements or divestitures as you look to focus the company on kind of some of the more growth objectives over time?

Yes. We will narrow our portfolio. We're much clearer on which categories and brands offer the most attractive growth of scalable growth, i.e., we can execute the same innovation through the same production in more parts of the world. So we are completing that analysis now. I'm sure going forward, you will see a more focused portfolio for Perrigo and faster growth rates than at a higher OI. We will share that thinking at the Investor Day late fall.

And your next question comes from Daniel Biolsi from Hedgeye.

So could you spend some time on the inventory destocking outside of cough/cold, like in sleep base, healthy lifestyle, oral care? Is that permanent just timing or loss of shelf space?

So at this stage, we believe that there is an overall focus on retailers destocking the cost of that and also trying to understand what the focus of consumers, right? So as we're seeing more and more consumers trading down, I think retailers at this stage will be very careful. And given a year that they saw a lot of increases in 2023 and volume impact, they're trying to do more carefully about how they're going to manage their working capital as well as their inventories. And so I think that across categories is not specific to cough and cold, and so we're going to be watching that closely. But if there is an area where, when consumers start to make those changes, we believe Perrigo has an advantage, is really store brands. And we're seeing that coming along pretty well as we gained some share in the quarter. And so as consumers continue that direction, we believe store brand will continue to be a very affordable opportunity for consumers to continue to take care of their self, and so we are very well positioned in those categories.

I think your quote and your hypothesis are correct. We're seeing more categories in self-care with a limited amount of shelf space and retailers are increasingly focused on cash and return on working capital. As a result, there has been some destocking. However, there is a natural limit to that because otherwise, they wouldn't be able to serve their customers. We believe we are getting close to that limit.

And then if I could ask one more. What should we expect for the gross margin impact from infant formula in Q2? If Q1 was a minus 520 basis point impact, and we got earlier shipments, what should we expect in Q2 and we're going to lose those shipments?

We expect our margins to improve significantly in Q2. In the previous quarter, we faced two main challenges: lower shipment volumes and interruptions in our manufacturing processes. We do not anticipate these one-time issues to affect us in Q2. While volumes might not reach last year's levels, we expect to see a gross profit margin improvement compared to last year.

I think the quarter 1 gross margin decline overall for the business was 90%, and that included a 280 basis point impact from infant formula. That was the calculation for Q1.

But that's what I'm saying. In Q2, we do not expect a magnitude impact into the improvement as compared to what we saw last year.

That ends our Q&A. I will now hand the call back to Mr. Patrick Lockwood-Taylor for closing remarks.

Thank you very much. In comparison to what we outlined in February, we have achieved what we set out to do and the outcomes align with our expectations. We believe we are on track to meet our commitments for 2024. As discussed several times today, the recovery in infant formula is progressing according to our plan. Our start-ups and throughput numbers are promising in relation to our financial commitments. Moreover, while we haven't discussed it much today, Project Energize was executed exceptionally well, and we are meeting or exceeding our targets. Although it's early for Opill, we should remain optimistic. It represents a new standard for our launch excellence, providing valuable lessons for the future. We are committed to maintaining a strong focus on the execution of our key priorities for 2025 as we work through our financial commitments. Thank you for joining us today.

Thank you. That concludes our conference for today. Thank you for participating. You may all disconnect.