PERRIGO Co plc (PRGO) March 2026 Conference Transcript

Good morning, ladies and gentlemen, and welcome to the Perigo Q1-2026 Financial Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, May 7, 2026. I would now like to turn the conference over to Mr. Eric Jacobson, VP Global Investor Relations.

Welcome to Parago's first quarter, 2026 earnings conference call. A copy of the release we issued this morning and the accompanying presentation for today's discussion are available within the investor section of the Parago.com website. Joining today's call, our pair goes President and CEO and CFO, Eduardo Bezzera. As a reminder, beginning this quarter, we are reporting segments aligned with our new commercial operating model. We have recast historical results under the new structure for comparability to tape filing. And this change had no impact on our consolidated financials. along with our new reporting segments, we have changed our main profitability measure to adjusted operating income. During this presentation, participants will make certain forward lists. Please refer to the slides for information regarding these statements, which are subject to adjusted financial measures that are non-GAAP in nature. See the appendix to the earnings presentation for additional details and reconciliations of all non-GAAP-to-GAAP financial measures presented. Patrick's discussion.

We have several... Thank you for joining today's call.

Steady progress in challenging market environments impacts it first. However, our 3S plan to stabilize, streamline, and strengthen the company is helping us navigate these conditions and positioning the company for long-term growth. The strategy is working. That's clearly demonstrated by our market share gains, even in what we have highlighted as a transition year. Commentary, second half. The lapping of prior year manufacturing volume headwinds, benefits from cost-saving initiatives. For those takeaways, there's a back positive change into a 100 basis point improvement in volume share during the quarter. Six of seven categories gaining share. To further dimensionise our performance, we have gained 270 basis points of the U.S. store brand in the first quarter of a year. Key brands in Europe also improved, gaining 20 basis points of value share in a challenging consumption environment. We have also stabilised results in infant formula by reliability. To streamline our business, we completed the divestiture of the Dermacosmetics business in April. An important milestone in further simplifying our operations and enabling debt reduction. The views of our income are ongoing. Efficiencies are important. Our operational enhancements are more than $7 million and is on track for $1 million in savings of the year. With an additional 20% in our business degree-led operating model and enhance our commercial and category leadership. because the next lines are decision-making, investment priorities, with our new commercial operating model.

And our new reporting segments include self-care, turning to our results starting with the top line. Core net sales declined 8.3% year-over-year, driven by software consumption, primarily in-coffing calls, and retailer inventory stocking in the self-care segment. Higher specialty care net sales partially offset that weakness, driven by performance in our women's health category. On an organic basis, core net sales declined 11%. All-in net sales declined 7.2%, reflecting the same factors impacting core results, in addition to modest contributions from infant formula and derma cosmetics business. Currency translation benefited both core and only net sales. Looking at adjusted operating income by segment, self-care was the largest driver of decline due to lower net sales volumes, the carryover impact of prior year manufacturing volume headwinds, and unfavorable mix. These factors were partially upset by the net recognition of recovery of a portion of previously paid tariffs and favorable currency translation. Specialty care benefited from the lapping prior year OPU investments, as well as favorable foreign currency, which more than offset the carryover impact of prior year manufacturing volume headlands. All lean adjusted operating income was primarily driven by the same factors as core, along with an $18 million impact from NIFAN formula due to the carryover of prior year manufacturing volume heavy. These impacts were partially offset by operating income growth in all other segments. According to margins, drivers of both core and all-in margin changes were consistent with the segment results just discussed. Core adjusted gross margin declined 160 basis points to 39.2%, primarily due to lower sales volumes, manufacturing volume heavy wins, and These pressures were partially upset by the net recognition of tariff recovery and favorable foreign exchange. All-in adjusted gross margin declined 340 basis points to 37.6% due to the same factors impacting core gross margin in addition to the manufacturing volume headwinds in infant formula we just mentioned. Core adjusted operating margin decreased 110 basis points to 12.8%, reflecting gross margin flow-through, partially mitigated by lower advertising and promotion spend, benefits from the operational enhancement program we announced in Q4, and favorable outcomes. All-in adjusted operating margin decreased 240 basis points to 11.6% due to the same factors as core operating margin, in addition to the impact from infant form. Quarter core adjusted earnings per share was $0.04, coming in above our expectations prevailing to the net recognition of recovery of a portion of previously paid tariffs and a lower effective tax rate. All-in adjusted diluted earnings per share declined $0.17 to $0.43 due to the impact of lower sales volumes and the carryover impact of prior-year manufacturing volumes in U.S. OTC and infant phone. Turning to cash flow, first quarter 2026 cash from operating activities decreased $49 million to an outflow of $114 million due to lower earnings and higher working capital in line with our previous expectations. As a reminder, the first quarter is typically our highest cash usage period amongst the year. Capital expenditures totaled $14 million and we returned $40 million to shareholders through these days. Turning to the balance sheet, cash and cash equivalents were $357 million, and total debt was $3.6 billion. During the quarter, we amended our $1 billion revolving credit facility, extending the maturity to 2031. Borrowings under the revolver were used to repay our $421 million term loan aid, extending our maturity profile with no significant maturities until 2029. We expect to continue to actively manage and optimize our maturity depth profile going forward. After quarter end, we completed the sale of our dermacosmetics business for upfront cash proceeds of approximately 306 million euros, which we expect to use to support debt reduction. We remain focused on our disciplined capital allocation, balancing growth investments, deleveraging, and shareholder returns. Looking ahead, although category dynamics were softer than expected in the first quarter, our guidance incorporates a wide range of outcomes and gives us comfort in reaffirming our 2026 outlook. We're closely monitoring retailer inventory changes, particularly the de-stocking activity observed in the first quarter, which we believe is largely related to the current consumption environment. As consumption levels improve, we expect inventory trends to stabilize. We are also actively managing the inflationary pressures related to the geopolitical developments in the Middle East and their impact on consumers and our cost base. To mitigate the estimated incremental in-year impact of $10 million on our cost base, we have implemented sourcing and cost management initiatives, and we will also evaluate pricing actions. As Patrick noted, we continue to expect results to be weighted to the second half of the year, with approximately 30% to 35% of core adjusted earnings per share in the first half, and 65% to 70% in the second half of 2026. This phasing is supported by clear, quantifiable drivers, the majority of which are concentrated in the back half. The single largest sales growth contributor in 2026 is expected to be consumer-centric innovation. Approximately 60% of the benefit from innovation is expected in the second half, including the expansion of our complete portfolio and the introduction of new infant formula offerings. Several of our other 2026 drivers, including distribution gains amplified by demand generation activity with top retailers, targeted geographic expansion, and benefits from our operational enhancement program are all expected to be back half-weighted. In addition, we anticipate lower interest expense in the second half as we apply the Dermacosmetics proceeds towards that. In conjunction with those drivers, two of the most meaningful first-half headwinds, the carryover impact of prior year manufacturing volume headwinds and a softer cough and cough season are transitory and expected to lap in the second half. As indicated last quarter, prior manufacturing volume headwinds are expected to result in an unfavorable all-in earnings per share impact of approximately. In summary, and thank you.

We will now begin our question and answer session.

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 J.P. Morgan. Please go ahead.

Hi, this is Ethan on for Chris Scott. 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 lead us 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 improvements because of the different activities we have. So innovation, you know, continued 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 conversions, right? So from a market standpoint, we're seeing consumption to be in store brands, 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 about before between optimizing our network. And to that purpose, we've recently announced, you know, a rationalization of our capacity in 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 divestment. 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 game. 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.

I'll try to say again. 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 wins. 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 equivalents 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 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, 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 store brands. 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, where 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?

On cough cold, I've been trying to predict cough 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 weak cold season, both in the US and many countries throughout Europe and therefore in totality. The rational 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 an entirely logical outlook and forecast.

And the second part of your question was…

Just on pricing, I guess.

We are… So, firstly, the inflationary pressures that we've seen from the Middle East have been very moderate for us, and we would just manage those through sort of normal operations.

But we are starting to look at pricing, depending on what happens with other commodity pricing etc so yes I would say we're it we're in active consideration of that both in the international our 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 etc 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 right mainly because of the still strong let's say household wallet you know 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 But if that starts to impact further, the trade down could accelerate. And that's an opportunity that takes place where we're ready to take advantage of that.

Okay, great. Thanks so much. Good luck the rest of the year.

Thank you, Susan.

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 you called out some expectations for the second half to be better. Just hoping you can add more context on exactly what's driving that. I think we're seeing across branded and store brand consumption be 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 act to be better, and, you know, is it maybe better visibility into the contract wins or, you know, the de-stocking easing, but just kind of unpacking that a little bit I think would be helpful.

Yeah, thanks. 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 takeaway, 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 analogy. So we're seeing more and more 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 prior experience, right? So, but again, we acknowledge the recent developments, right? So we acknowledge some retailer de-stocking that took place in the first quarter. We believe that is mainly related to the soft coughing cold, you know, that they wanted to be more pragmatic on managing their cash in that sense and adjusted their inventory levels, but that's something we 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 incidents across categories. Household penetration is quite stable. Apart from one, for us, one small segment in an area of pain that consumers are moving into alternate forms in pain, from solid pill to creams, et cetera. So no radical change in incidence 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 you 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 Bolsi with Hedgeye.

Good morning. I was wondering if you could speak to the consumer's purchasing behavior in-store versus online for, you know, branded versus store-label products in self-care categories. Do you think there's, like, a notable difference with your largest customers? Are they doing a good job of highlighting store-label alternatives in their searches? Because, like, when I look at the largest retailers, there's quite a big difference between them, you know, when I search for Advil versus ibuprofen, for example.

Good question.

Some of our higher shares on 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 equivalent, and they can be of much better value with 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 you an important example, like in women's health and OPE, 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, you know, a very good uptake, you know, while, you know, the sales on UP were double-digit growth of plus 12%. So you see how, you know, e-commerce is taking a very important piece of that growth.

And then can you share what the board's thoughts are on the dividend currently?

Could you repeat that? Oh, yeah.

So, you know, as we talked in 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, right? So we're going to keep that same focus going forward. and the board will continue to assess that on a quarterly basis, you know, what's our position, you know, to make sure we optimize our capital location and that 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 us. 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 Perigot. 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 Dermot Cosmetic divestiture and applying those proceeds towards debt reduction. 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 de-stocking and European consumption pressures weighed on results. But importantly, our improved operating capabilities enabled us to mitigate those pressures and capitalise 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.